The Government has announced a 30% minimum tax on discretionary trusts from 1 July 2028. If you hold assets or run a business through a family trust, this is one of the most significant tax changes in a generation.
Discretionary trusts have been a cornerstone of family wealth planning for decades, offering asset protection, succession flexibility, and the ability to manage tax outcomes across a family group. The Federal Budget handed down on 12 May 2026 alters that picture.
Key points of the 30% minimum trust tax
- Minimum 30% tax on discretionary trust taxable income from 1 July 2028.
- Tax paid by the trustee. Non-corporate beneficiaries receive non-refundable credits.
- No overall change where beneficiaries are already on 30%+ marginal rates.
- Corporate Beneficiaries (“bucket companies”) cannot claim credits – significantly reducing the tax benefit of that structure.
- Fixed trusts, super funds, deceased estates and charitable trusts are excluded, as is primary production income.
- Future discretionary testamentary trusts will be in scope. Fixed testamentary trusts are excluded but carry their own trade-offs.
- Rollover relief available for 3 years from 1 July 2027 for those restructuring out of discretionary trusts.
Major shake-up for trust taxation
Under the current rules, a trustee can distribute income to lower-income family members which then reduces the overall tax burden across the family group. The new rules now impose a floor tax of at least 30% regardless of who receives the income.
Individual (non-corporate) beneficiaries already on a 30% or higher marginal rate will see no change to their tax rate, but they will receive a non-refundable tax credit for the trustee-level tax paid.
Bucket companies lose their tax benefit
A commonly used strategy for family trust structures is to include a private company as a beneficiary – often called a “bucket company” – to receive trust distributions, pay tax at the corporate rate of 25–30%, and accumulate profits for future use. Shareholders can then draw franked dividends, with the franking credits offsetting personal tax.
This Budget announcement specifically targets this arrangement. Under the new rules, corporate beneficiaries will not receive a non-refundable credit for the trustee-level minimum tax, meaning that distributing trust income to a bucket company after 1 July 2028 may result in the same income being taxed twice with no relief.
For clients who are primarily using a corporate beneficiary as a tax effective income streaming strategy – this is now effectively eliminated as at 1 July 2028.
Impacts on estate planning and testamentary trusts
New discretionary testamentary trusts are also captured under the new 30% minimum taxation rules, with an important, narrow carveout.
Income earned by discretionary testamentary trusts existing at the date of announcement (12 May 2026) are excluded. This means that the testator must have already passed away and the trust established prior to 12 May 2026. A testamentary trust only comes into legal existence after a person dies – until that point, testamentary trust provisions in a Will are simply instructions waiting to take effect.
This means that for people still alive with testamentary trust provisions in their Will, no exclusion applies.
Fixed testamentary trusts are excluded entirely, but converting to a fixed structure is not as straightforward an answer as it might sound. Switching to a fixed testamentary trust removes the trustee’s discretion over distributions, can force income to a beneficiary on a 47% marginal rate, and reduces asset protection.
For most families, the primary reasons to use a testamentary trust – protecting inherited assets from relationship breakdown, creditors, or changed circumstances – remain compelling. The 30% minimum tax is a cost to be weighed against those benefits, not a reason to abandon the structure. It is still unclear how the excepted trust income rules under section 102-AG for minor beneficiaries will interact with this new change.
Restructuring – the rollover window
For those who decide that the minimum tax makes their current structure unworkable, the Government is providing a three-year window of rollover relief starting 1 July 2027 and closing 30 June 2030.
During this window, restructuring out of a discretionary trust into a company or a fixed trust will not trigger income tax or capital gains tax consequences. However, state-based taxes including stamp duty will still apply at this stage and should be weighed against the tax benefit of restructuring.
What you can do
Key aspects of the legislation remain subject to consultation, including the precise collection mechanism, the treatment of excess franking credits at the trustee level, and the detail of the rollover relief. We will continue to monitor the development of the law and provide updates as the detail is settled.
While immediate changes to your tax structures may not be necessary, with changes not coming into effect until 1 July 2028, now is a good time to consider the ongoing benefits of your existing structures.
- We recommend reviewing existing trust structures with a professional adviser to understand whether and how the minimum tax will affect your trust’s future distributions and tax position.
- Clients utilising bucket company structures should consider whether the structure is still fit for purpose.
- Estate plans with testamentary trust provisions should be considered to ensure they remain the most effective structure for your personal circumstances.
- The rollover window opens 1 July 2027, with CGT and income tax rollover relief available for restructuring into a company or fixed trust.
Contact our estate planning and tax structuring teams to assist in reviewing your trust arrangements and advise on the impact of these changes for your specific circumstances.
Further reading
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