If your family or business runs through a discretionary trust, there’s a big change coming. Treasurer Jim Chalmers has introduced legislation for a 30 per cent minimum tax on discretionary trusts, starting 1 July 2028. The official consultation materials are published on Treasury’s website.
Here’s the short version: the bill has been introduced in Parliament but is not law yet. If it passes, trustees of affected discretionary trusts will pay at least 30% tax on the trust’s income before it’s distributed. There are two legal ways to avoid the new tax, and plenty of trusts are exempt. Below is a plain-English guide to what it means for you — but please note this is general information, not personal tax advice. Talk to your accountant about your own situation.
What is the trust tax, exactly?
A discretionary trust (often called a family trust) lets the trustee decide each year who gets the income — usually splitting it across family members so each person pays tax at their own marginal rate. Treasury found that in 2022-23, families using discretionary trusts paid on average about four percentage points less tax than families on similar incomes who didn’t use one.
The government says this is unfair and wants to close the gap. From 1 July 2028, the trustee of an affected discretionary trust would pay a minimum 30% tax on the trust’s net income. It works as a top-up, not an extra layer: if the trust’s income is already taxed at 30% or more, nothing extra is owed. Chalmers says this lines up with what a worker earning roughly $45,000 to $135,000 already pays. Beneficiaries get non-refundable tax credits for what the trustee pays, so income isn’t taxed twice.
The proposal was announced in the May 2026 federal Budget, followed by a Treasury consultation paper in July and exposure draft legislation on 3 September 2026. The bill — the Treasury Laws Amendment (Tax Reform No. 3) Bill 2026 — was introduced in Parliament in mid-October 2026, and the government hopes to pass it before the end of the year.
Key dates to know
- 12 May 2026 — 30% trust minimum tax announced in the federal Budget.
- 3 September 2026 — exposure draft legislation released; consultation closed 18 September.
- October 2026 — bill introduced in Parliament (needs to pass the Senate to become law).
- 1 July 2027 — rollover relief becomes available for trusts that choose to restructure.
- 1 July 2028 — the 30% minimum tax would start applying.
Who will it affect?
Discretionary trusts are more common than most people realise. Treasury estimates there are around 840,000 discretionary trusts, and about 350,000 active small businesses — roughly one in six — operate through one. Treasury expects about 210,000 of those to pay more under the change, while around 140,000 won’t pay a cent extra. Chalmers says fewer than 10% of small businesses will be touched overall.
Trusts also hold serious money: combined trust assets are worth an estimated $2.9 trillion, earning around $600 billion a year. About two-thirds of trust distributions go to the top 10% of income earners.
The government expects the measure to raise about $4.5 billion in its first year. Industry groups dispute the upside: figures reported this week via Wilson Asset Management and CPA Australia suggest affected trusts could spend $8 billion to $13.3 billion on advice and restructuring to comply — though that estimate hasn’t been independently modelled.
Which trusts are exempt?
Plenty of trusts are carved out entirely. The exemptions cover:
- Fixed trusts, widely held trusts, managed investment trusts (MITs), bare trusts and employee share trusts
- Complying superannuation funds
- Registered charities
- Deceased estates
- Special disability trusts
- Family farms — primary production income is excluded
- Testamentary trusts set up for genuine testamentary purposes (though advisers note the draft wording is narrower than first promised, so get advice)
- Certain income for vulnerable minors and income already subject to non-resident withholding tax
Distributions to sporting clubs and schools are also exempt up to a cap the government describes as “reasonable” — but that cap hasn’t been set yet.
The two ways to avoid the minimum tax
If your trust is in scope, the draft legislation gives you two options:
1. Restructure with rollover relief (from 1 July 2027)
You can wind up or restructure out of the discretionary trust, and rollover relief softens the income tax and capital gains consequences. The catch: stamp duty is a state-level issue, and the relief may not cover it — a point disputed publicly between the government and the Coalition. If your trust holds land or other dutiable assets, especially in Queensland or WA, get modelling done before deciding.
2. Make a fixed-distribution election
Added in the September exposure draft, this is the middle path. The trust stays a discretionary trust but elects to pay fixed distributions to pre-nominated beneficiaries. No restructure is needed, and the election isn’t expected to trigger state stamp duty. The trade-off is real: once elected, distributions must follow the fixed shares year after year. Stray from the arrangement and the election is revoked — with tax at the top marginal rate plus Medicare levy, far worse than 30%.
What you should do now
- Don’t rush. The bill isn’t law yet, and the tax doesn’t start until July 2028. Press-coverage decisions are how people get burned.
- Talk to your accountant or tax adviser before making any change to your trust — especially the fixed-distribution election, where a single wrong distribution has severe consequences.
- Review your trust deed — does it allow the election, and does it need updating for the new rules?
- Tighten your distribution record-keeping now; the new regime demands precise annual processes.
- Watch the bill’s progress. The Coalition vows to repeal the measure, the government needs the Greens’ Senate votes, and the Greens want an inquiry into the carve-outs. It may change before it passes.
Frequently asked questions
Is the trust tax law yet?
No. The bill was introduced in Parliament in October 2026 and must pass both houses. Until then, nothing has changed.
Does it apply to every discretionary trust?
No. It’s a minimum tax that only kicks in where the income would otherwise be taxed below 30%, and many trust types are exempt (see above). Treasury expects around 140,000 small businesses using trusts to pay nothing extra.
What if my trust distributes to a company (a “bucket company”)?
This was one of the harshest features of the original Budget announcement, potentially causing double taxation. The September exposure draft softens this: the fixed-distribution election can cover eligible companies, easing the problem. Get professional advice before acting.
Does it affect super funds?
No — complying superannuation funds are explicitly exempt.
I’m a beneficiary, not a trustee. Should I worry?
The tax is paid at trustee level, but it can reduce what flows to you — especially if you’ve been receiving income taxed at a low personal rate. The credits mean you’re not double-taxed, but ask your adviser what your trust’s distributions will look like after July 2028.
