The family trust tax changes announced in the May Budget would put a 30% minimum tax on income from discretionary trusts, proposed to start from 1 July 2028. It is not law yet. Treasury has released the first draft of the law, consultation closed on 18 September 2026, and there are more pieces still to come, so the detail can shift.
Trusts aren’t finished. What matters is pricing the change in dollars before the rules are final, because owners who plan early will pay a lot less than the ones who panic late.
In Episode 22 of Business Uncut, Reuben walks through what the draft does, what it doesn’t change, and a five-step framework to run with your accountant.
Key takeaways
- The 30% minimum tax on discretionary trust income is proposed from 1 July 2028. It isn’t law yet.
- Under the draft, the trustee pays at least 30% up front and individual beneficiaries get a credit for it.
- A company beneficiary gets no credit under the draft, so the old bucket company play could cost 55% to 60% combined.
- Price your gap in dollars before you move, then choose deliberately: keep the trust, restructure or elect.
Watch the full episode on the New Wave YouTube channel.
What’s proposed, and what isn’t
The government announced the minimum tax on 12 May 2026. In most cases, a discretionary trust and a family trust are the same thing: the structure where the trustee chooses who receives the income each year.
The proposal
Not law yet. Treasury has released the first draft, consultation closed on 18 September 2026 and more pieces are still to come.
For decades, the family trust has been the default small business structure in Australia. Not because of anything dodgy: it is flexible, it protects assets and it lets you bring family into the business properly. Part of its value was spreading income across your family group, and that spreading is what the proposal targets.
How the 30% floor works under the draft
Under the draft, the trustee pays at least 30% on the trust’s income up front. Individual beneficiaries get a credit for that, so if your own rate is higher, you pay the difference. If your rate is lower, 30% is the floor.
Asset protection doesn’t change, and neither does succession planning. But a couple of details have firmed up since the Budget:
- Franked dividends: under the draft, the trustee uses the franking credits against its own tax, so they no longer flow through to beneficiaries the way they do now.
- Capital gains: how they fit in hasn’t been released yet, so anyone claiming to have this fully worked out is guessing.
A hypothetical example: the family building company
Hypothetically, say you run a building company through a trust and distribute some income to a spouse working part time in the business and a child at uni. Today, the tax on those amounts reflects each person’s own rate. Under the draft, there would be a 30% floor on it.
The gap between what you pay now and what you would pay then is your exposure. For many businesses turning over $1M to $20M, it is real money.
Step 1 Work out if the change actually affects you
Measure before you move. Plenty of trusts barely distribute anything to low-rate beneficiaries, so the change does very little.
Hypothetically, if your trust distributes everything to one working owner already on the top rate, a 30% floor is mostly irrelevant: you have already cleared it, and you get the credit. Pull your last two distribution minutes and see who got what.
Step 2 Price the gap in dollars, not headlines
“Trusts are getting smashed” is a headline. A number is a decision.
Hypothetically, say your trust distributes $100,000 a year to family members whose own tax on that income lands well under 30%. The gap between their rate and the floor is your annual cost of doing nothing, so multiply it across a few years. If the number is small, don’t rebuild your whole structure over it.
Step 3 Don’t assume the bucket company fixes it
A bucket company is a company you distribute trust profits to, so they are taxed at the company rate instead of a personal rate. It has been the standard play for 20 years.
Under the draft, a company beneficiary gets no credit for the trustee’s 30%. The trust pays 30%, then the company pays its own tax on top, and advisers are putting the combined hit at somewhere between 55% and 60%. The old lever could now work against you, so test it rather than trust it.
Step 4 Pay real work through the payroll
A wage paid to someone who genuinely works in the business comes off the trust’s profit before there is any trust income to tax, so it is taxed at that person’s own rate, not the floor.
If your spouse works 20 hours a week in the business and has been taking a distribution instead of a properly documented wage, look at that now. Wages need a real role, timesheets, super and payroll that stacks up, and you can’t retrofit that in 2028.
Payday Super also started on 1 July 2026, so super has to hit the fund within seven business days of payday (we covered that change in our article on why profitable businesses run short of cash). Reward real work properly, and keep it commercial.
“Trusts are getting smashed” is a headline. A number is a decision.
Step 5 Know your three options, and the clock on each
- Keep the trust and pay the floor where it bites.
- Restructure. The draft includes a rollover from 1 July 2027 to 30 June 2030, which lets you move assets into a new structure without an immediate tax bill on the move. Under the draft, it is generally all the relevant assets, to one new owner, inside that window, and it doesn’t touch stamp duty, GST or your bank’s paperwork.
- Elect. New in the draft: an existing trust can make a once-only election to lock in fixed percentages for each beneficiary and step outside the minimum tax (an excluded election trust). The catch: it can only be made in the 2028/29 year, the percentages are basically locked unless someone dies or a relationship ends, and if it unravels, the trustee can be taxed on the lot at the top rate.
Pick your option deliberately and book in early, because every adviser in the country is working to the same dates.
The CGT changes are already law
The capital gains changes are no longer proposed: they passed Parliament in June. From 1 July 2027, indexation replaces the 50% discount, with a 30% minimum tax on gains, and the small business CGT concessions stay. If you are restructuring anyway, plan those two timelines together, not separately.
Three traps to avoid
- Blowing up a good trust for a tax outcome and forgetting why the structure existed. In construction or medical, where risk is real, asset protection usually matters more than a few points of tax.
- Moving before the law is final. The trust tax is still proposed, and the rollover relief doesn’t open until 1 July 2027. Restructure now and you could trigger capital gains tax, stamp duty and new finance documents with no relief, for a problem that might still change shape.
- Doing nothing until the middle of 2028, then ringing your accountant in a panic. The queue will be enormous, and the election is one year only. Miss it and it’s gone.
Your one action this week
This week
Pull out your most recent trust distribution minute, the one your accountant prepared at year end. Look at who received income, roughly what rate they paid, and whether any of it went to a company. That single page tells you most of your exposure.
Then send it to your accountant with one question: what’s my annual gap if the 30% floor applies?
Frequently asked questions
Is the 30% family trust tax law yet?
No. It is a proposal announced on 12 May 2026, to start from 1 July 2028. Treasury has released the first draft, consultation closed on 18 September 2026, and more pieces are still to come.
Should I restructure my family trust now?
Moving before the law is final is one of the three traps. The trust tax is still proposed and rollover relief doesn’t open until 1 July 2027, so restructuring now could trigger capital gains tax, stamp duty and new finance documents with no relief. Price your gap first.
What is an excluded election trust?
A new option in the draft: a once-only election, made in the 2028/29 year, that locks in fixed percentages for each beneficiary and steps the trust outside the minimum tax. If it unravels, the trustee can be taxed on the lot at the top rate.
Keep reading
Not sure what the trust changes cost you?
We’ll run your gap number, look at the trust, the beneficiaries and the timing, and tell you straight whether to sit tight, restructure or elect.
General information only, not personal tax, legal or financial advice. Figures are hypothetical examples. Talk to your adviser about your own situation.
