For Australian business owners and investors, the family trust has long been a cornerstone of tax and wealth planning. Its flexibility, asset protection benefits, and income-splitting efficiency made discretionary trusts the structure of choice for generations of family businesses.
The 2026 Federal Budget introduces a 30% minimum tax on trust-distributed income from 1 July 2028, a change that materially reduces the primary tax advantage most trustees have relied upon, and prompts a necessary reassessment of whether the current structure remains optimal.
How Family Trusts Have Worked — and Why They Were So Popular
Family discretionary trusts have long been a popular structure for managing business and investment income in Australia. Their appeal has traditionally come from flexible income distribution, asset protection, and tax efficiency compared with individual ownership structures.
The Core Tax Advantage
A discretionary trust allows the trustee to distribute income between beneficiaries each year based on their marginal tax rates. In practice, this enabled families to reduce their overall tax by directing income to lower-income beneficiaries, such as a spouse or adult children.
For example, income distributed to a beneficiary in a lower tax bracket could result in significantly less tax than if the same income were earned by someone on the top marginal rate.
Other Advantages of the Trust Structure
Beyond tax planning, discretionary trusts have also remained popular for:
- Asset protection against personal insolvency and legal claims
- Estate and succession planning flexibility
- Access to CGT concessions for eligible long-term assets
- Continuity of ownership across generations for family businesses
What the 2026 Budget Changed — and When
The 2026–27 Federal Budget introduces major changes to how discretionary trust distributions are taxed from 1 July 2028. Under the new rules, income distributed through a family trust will generally be subject to a minimum effective tax rate of 30%, regardless of the beneficiary’s personal tax bracket. Further details are outlined in the 2026–27 Budget Tax Measures.
The 30% Minimum Distribution Tax
From 1 July 2028, beneficiaries receiving trust distributions below the 30% tax threshold will no longer benefit from lower marginal tax rates. For example, a beneficiary who would normally pay 16% tax on additional income will instead be taxed at the new 30% minimum rate on trust distributions.
Beneficiaries already paying tax at 30% or above are generally unaffected by the change.
The CGT Interaction
The reforms also affect capital gains distributed through trusts. Where a trust sells a CGT asset and distributes the gain to beneficiaries, the 30% minimum tax may apply alongside the broader CGT changes commencing from 1 July 2028.
What Has Not Changed
The reforms change the taxation of trust distributions rather than the legal structure itself. Discretionary trusts will continue to provide:
- Asset protection benefits against personal insolvency and certain legal claims
- Estate and succession planning flexibility for transferring wealth and business interests across generations
- Access to the 2027–2030 rollover relief period for eligible restructures into alternative entities such as companies or unit trusts
Who is Most Affected — and Who is Not
The impact of the 30% minimum tax depends largely on how trust income is currently distributed.
Your Current Strategy | Tax Impact From 1 July 2028 | Impact Level |
Distributing income to a spouse or adult child on a low income | 30% minimum tax applies to distributions previously taxed at lower marginal rates | High Impact |
Distributing to beneficiaries with little or no other income | Previously low or tax-free distributions become subject to 30% tax | Very High Impact |
Distributing to a corporate beneficiary | Tax treatment broadly aligns with existing company tax rates | High Impact |
Distributing to beneficiaries already earning above the 30% threshold | Minimal or no material change | Low Impact |
Distributing rental or investment income to low-income beneficiaries | 30% minimum tax applies to those distributions | High Impact |
Distributing capital gains through the trust | Combined impact of the new trust tax rules and CGT reforms | Severe Impact |
Professional Practices: A Specific Concern
Professional service businesses, particularly medical, healthcare, legal, and financial practices, have commonly used discretionary trusts to distribute income across family members. The new 30% minimum tax significantly reduces the effectiveness of these arrangements where distributions are directed to lower-income beneficiaries. Our specialist resources for medical and healthcare business accounting cover the specific implications for healthcare professionals in more detail.
How Much More Tax Will You Actually Pay?
The financial impact of the 30% minimum tax will depend on how trust income is currently distributed and the tax position of each beneficiary.
Scenario A: Family Business Distributing to a Spouse
A business earning $400,000 through a discretionary trust currently distributes $150,000 to a spouse with no other income.
Particulars | Current Rules | From 1 July 2028 |
Distribution amount | $150,000 | $150,000 |
Tax payable | ~$39,838 | $45,000 |
Net amount received | ~$110,162 | $105,000 |
Additional annual tax | — | ~$5,162 |
Scenario B: Medical Practice Distributing to Adult Children
A medical practice distributes $60,000 each to two adult children with no other taxable income.
Particulars | Current Rules | From 1 July 2028 |
Total distributions | $120,000 | $120,000 |
Combined tax payable | ~$19,976 | $36,000 |
Additional annual tax | — | $16,024 |
Scenario C: Distributions to Higher-Income Beneficiaries
Where trust distributions are already made to beneficiaries earning above the 30% tax threshold, the reforms may have little or no material impact on the overall tax outcome.
Is a Company, Unit Trust, or Partnership Better for You Now?
The introduction of the 30% minimum trust tax has led many business owners to reassess whether alternative business structures may now offer better long-term tax efficiency and operational flexibility.
Factor | Discretionary Trust | Company (Pty Ltd) | Unit Trust | Partnership |
Tax on distributed profit | 30% minimum tax applies | 25–30% company tax rate | Beneficiary marginal tax rates apply | Partner marginal tax rates apply |
Income distribution flexibility | Reduced under the new rules | Dividends paid to shareholders | Fixed unit entitlements | Fixed profit-sharing ratios |
Asset protection | Strong | Moderate | Moderate | Limited |
CGT treatment | Subject to revised trust and CGT rules | No CGT discount at the company level | Standard CGT concessions may apply | Standard CGT concessions may apply |
Estate and succession planning | Flexible trustee control | Ownership transferred via shares | Fixed ownership interests | Governed by a partnership agreement |
Franking credits | Can flow through distributions | Generated through company dividends | Limited pass-through availability | Not applicable |
Restructure rollover relief | Available during the 2027–2030 relief window | Eligible to receive rolled-over assets | Eligible in certain restructures | Less commonly used for restructures |
The Three-Year Rollover Relief Window — How to Use It
The 2026 Budget reforms include a three-year rollover relief window from 1 July 2028 to 30 June 2030, allowing eligible businesses to restructure discretionary trusts without triggering immediate CGT or, in some cases, stamp duty liabilities.
What the Rollover Relief Allows
- Transfer eligible trust assets into alternative structures such as companies or unit trusts
- Access potential CGT and stamp duty relief on qualifying restructures
- Restructure business entities without immediate tax consequences where eligibility requirements are met
What the Rollover Relief Does Not Do
- The 30% minimum tax still applies to trust distributions made from 1 July 2027
- Certain deemed disposal or pre-CGT events may still create tax liabilities
- The rollover relief is not automatic and requires proper legal structuring, documentation, and tax elections
Distribution Planning, EOFY, and Payroll Implications
Trust Resolutions Before 30 June Each Year
Discretionary trusts must finalise distribution resolutions before 30 June each financial year to determine how trust income is allocated to beneficiaries. Failure to do so may result in undistributed income being taxed at the top marginal rate. Understanding how the Australian financial year works and the importance of the 30 June deadline is essential for trustees and beneficiaries alike.
From FY2027–28 onwards, trustees will also need to consider the 30% minimum tax when planning distributions, particularly where income is directed to lower-income beneficiaries.
Payroll and Salary Packaging Through Trusts
Many business owners combine salary payments with trust distributions to manage PAYG and overall tax outcomes. Under the new rules, this strategy may become less effective where distributions are made to beneficiaries below the 30% threshold.
Businesses should also review payroll compliance ahead of Payday Super commencing from 1 July 2026. Our outsourced payroll services support businesses with payroll compliance, reporting, and remuneration structuring.
Trusts Distributing to Companies
Some trusts distribute income to corporate beneficiaries to cap tax at the company tax rate. With the new 30% minimum tax broadly aligning with company tax rates, the effectiveness of this strategy may be reduced under the revised rules.
Common Mistakes to Avoid
- Delaying trust restructuring discussions until after 1 July 2028, leaving limited time within the rollover relief window
- Assuming rollover relief applies automatically without proper legal documentation and tax elections
- Failing to assess the CGT implications of restructuring or asset transfers
- Continuing pre-2027 distribution strategies without reviewing the impact of the 30% minimum tax
- Relying on outdated trust deeds that may restrict distribution flexibility under the new rules
Key Dates for Family Trust Holders
Date | Key Consideration | Priority |
30 June 2027 | Finalise trust distribution resolutions under the current rules and begin restructuring reviews | High |
1 July 2027 | Commence trust modelling, structure reviews, and valuation planning | Important |
30 June 2028 | Final distribution resolution before the new trust tax rules apply | Critical |
1 July 2028 | 30% minimum trust tax and related CGT reforms commence; rollover relief window opens | Deadline |
30 June 2029 | Recommended target date for completing eligible restructures | Target |
30 June 2031 | Rollover relief window closes for eligible trust restructures | Final Deadline |
So, Is Your Family Trust Still Tax-Effective?
The impact of the 2026 reforms will depend largely on how your trust currently distributes income.
Where distributions are primarily made to lower-income beneficiaries, the tax advantages of discretionary trusts are likely to be reduced significantly from 1 July 2028. However, for trusts distributing mainly to higher-income beneficiaries, the overall impact may be more limited.
Importantly, discretionary trusts still retain key benefits around asset protection, estate planning, and succession flexibility. The introduction of the 2027–2030 rollover relief window also provides an opportunity for eligible businesses to review and restructure their existing arrangements where appropriate.
Frequently Asked Questions
Do I Have to Wind Up My Family Trust?
No. The 30% minimum tax changes how trust distributions are taxed, but it does not require trusts to be dissolved. Whether restructuring is appropriate will depend on the trust’s assets, distribution strategy, and long-term business objectives.
What if My Trust Deed Says I Cannot Change the Distribution Pattern?
Some trust deeds contain restrictions on how income can be distributed between beneficiaries. Where these limitations create issues under the new rules, the deed may need to be reviewed or updated with legal advice to improve future flexibility.
Can I Still Distribute to a Corporate Beneficiary to Cap Tax at the Company Rate?
Yes, although the advantage may be reduced under the new rules. With the 30% minimum tax broadly aligning with company tax rates, distributions to corporate beneficiaries may provide less tax efficiency than under the previous framework. The overall impact will depend on the broader group structure and future dividend planning.
If I Restructure Into a Company, Can I Still Pass Assets to My Children?
Yes, although succession planning works differently in a company structure. Instead of varying trust distributions, ownership is generally transferred through shares, dividends, or estate arrangements, each with separate legal and tax considerations.