As at 29 September 2026.

If you run a business or hold investments through a family trust, there is a fair chance you set it up years ago on your accountant’s advice and have not thought hard about it since.

In May, the Government announced a 30% minimum tax on discretionary trusts from 1 July 2028. On 3 September, Treasury released draft legislation. It is not law and the detail is still moving, but it comes with decision points inside the next two years.

Where things stand

• Announced in the 2026–27 Federal Budget on 12 May 2026.
• Exposure draft released 3 September 2026; consultation closed 18 September.
• Further rules on administration and integrity are still to come. The Bill has not been introduced to Parliament.

“Not yet law” means everything below could change. What is sensible now is to know whether you are in scope and what your options would be.

What is proposed, in plain English

From income years starting on or after 1 July 2028, the trustee of a discretionary trust would be assessed on the trust’s taxable net income, after a list of exclusions, at a minimum rate of 30%. The draft calls this the trust’s “minimum tax income”.

An individual beneficiary would still include their share in their own return. To recognise the tax payable by the trustee, they would receive a tax offset equal to 30% of the part of their share that is attributable to minimum tax income. The offset is non-refundable: it reduces the income tax the beneficiary owes for the year, but any part that is not used is not paid out.

That is where the measure bites. Today, income distributed to a family member on a low rate is taxed at that low rate. Under the proposal the trustee is liable for 30% on it. A beneficiary with enough tax to absorb the offset ends up in a similar place to today. A beneficiary without enough tax to absorb it, because their total income is low, loses the unused part. The result is a floor on the tax paid on that income, not a cliff.

How it lands for a family depends on each beneficiary’s total tax position and the entities involved, not on a marginal rate read off a table.

Two further points from the draft:

• Companies as beneficiaries would not receive the offset. A company would be assessed on its share as it is now, on top of the trustee’s minimum tax.
• Franking credits on dividends that form part of minimum tax income would be applied against the trustee’s minimum tax rather than flowing through to beneficiaries, and excess credits relating to that income would be refundable to the trustee. Treasury says the treatment of franked distributions outside minimum tax income is unchanged.

The 30% is income tax. For individuals, the Medicare levy sits on top of whatever they pay in their own return.

Who it is not expected to reach

Proposed to sit outside the minimum tax:

• Fixed trusts under a new, wider definition, plus widely held trusts, managed investment trusts and bare trusts.
• Charitable trusts, special disability trusts and complying super funds.
• Deceased estates and genuine testamentary trusts.
• Primary production income and income for vulnerable minors.
• Distributions to registered charities, deductible gift recipients and non-resident beneficiaries subject to withholding tax.

Treasury’s fact sheet says more than 95% of individual taxpayers and more than 90% of Australia’s 2.7 million small businesses are expected to be unaffected in any year. Read that the other way as well: a family trust that holds a business or investments and distributes across the family is the kind the measure is aimed at.

Two paths on offer: restructure, or elect

The draft offers two ways to stay outside the minimum tax. Neither is free of consequences.

Restructure. A roll-over window is proposed from 1 July 2027 to 30 June 2030, allowing assets to move from a discretionary trust into a company or a fixed trust without immediate income tax or CGT. The relief defers the tax rather than removing it. The roll-over gives no relief from GST, fringe benefits tax or state duties, which would apply under their ordinary rules to whatever the restructure involves. For the small business 15-year exemption and related significant-individual tests, the original acquisition date would carry across. In most cases all of the trust’s assets would need to move, and the ATO notified. The relief would also carry conditions: if material discretion over members’ rights exists, or is introduced, within four years of the last transfer, the ATO could reverse the roll-over and the deferred tax would fall due. A restructure is not discretionary flexibility by another name.

Elect. A discretionary trust that exists on 1 July 2028 could elect to become an “excluded election trust”. The trustee would nominate beneficiaries and a fixed percentage for each, applying to both income and capital for as long as the election stands. Nominations could only change in narrow circumstances. If a nominated beneficiary dies, their share could be reallocated, but only to individuals who benefit from that person’s estate and can benefit under the trust. On a relationship breakdown between nominated beneficiaries, the shares could be varied to follow the court order or agreement. Neither is a general freedom to reset the nominations.

The election could be made once only, in the 2028–29 income year for a June year-end trust, with the ATO notified by the earlier of that year’s return due date and the day the return is lodged. Miss the window and the option is gone.

Leaving is harder than entering. The election would end automatically if the trustee distributes outside the nominated pattern, or if a nominated beneficiary trust or company is wound up, deregistered, stops being eligible or, for a company, changes hands other than through death or relationship breakdown. A trustee could also revoke voluntarily.

The draft attaches a severe consequence to the year an election ends: the beneficiaries are treated as never having been entitled, and the trustee is taxed on that year’s whole net income at the top marginal rate plus Medicare levy. How that applies to a voluntary exit, and when, is not settled in the draft materials. A revoked election cannot be remade, and an electing trust gives up the roll-over relief. Any exit needs advice before it is attempted.

The trustee’s discretion under the deed would remain, but to keep the exclusion the trustee would have to follow the nominated percentages every year. Distribute differently and the election ends, with the consequences above. In practice, an electing trust would operate much like a fixed trust.

Why this is a conversation with your accountant first

The choice between paying the minimum tax, restructuring and electing turns on the deed, the entities around it, unpaid distributions and often the small business CGT concessions. That is your accountant’s territory. Ours is the layer above: what each path does to family income, retirement assets, insurance and estate planning. The two are better decided together.

Questions to take to your accountant

• Is our trust in scope as drafted, or does an exclusion apply?
• How much of a typical year’s distributions go to beneficiaries who could not absorb a 30% offset?
• If we elected fixed percentages, could we live with them for the next decade? Who would they be, and what would it cost to get out?

The bottom line

A 30% minimum tax on discretionary trusts is proposed, not legislated. If it proceeds as drafted it would apply from 1 July 2028, with a restructuring window opening a year earlier and a one-off election for existing trusts. Whether it costs a family more depends on each beneficiary’s total tax position, the entities involved, and which path the trust takes.

One measured step: ask your accountant whether your trust is in scope. That answer tells you whether the rest of this matters to you.

Speak with an adviser

If this affects you, it may be worth reviewing your position before making changes. We work alongside your accountant so that the structural decision and the family financial plan are made with each other in view.

Important information

This article is general information only. It has been prepared without taking into account your objectives, financial situation or needs. Before acting on any information, consider whether it is appropriate for you and seek advice tailored to your circumstances. The minimum tax on discretionary trusts described here is a Government proposal at exposure draft stage as at 29 September 2026 and is not law. Details may change. Tax outcomes depend on individual circumstances; speak with your accountant or registered tax agent. FinPeak Advisers ABN 20 412 206 738 is a Corporate Authorised Representative No. 1249766 of Spark Advisors Australia Pty Ltd ABN 34 122 486 935 AFSL No. 380552 (a subsidiary of Spark Financial Group ABN 15 621 553 786).

Sources: Treasurer’s media release, 3 September 2026; Treasury consultation c2026-799771 — fact sheet, exposure drafts and explanatory materials (minimum tax, electable regime, roll-over relief); ATO, Tax reform – introducing a minimum tax on discretionary trusts.