Australia’s proposed 30 per cent minimum tax on discretionary trusts risks affecting more than one million trust structures nationwide, according to industry submissions and professional body warnings as the government moves to finalise the measure from 1 July 2028.
Core proposal and timeline
The federal government’s 2026–27 Budget introduced a headline reform: a minimum 30 per cent tax rate on the taxable income of discretionary (family) trusts, applicable whether income is retained in the trust or distributed to beneficiaries. The measure is intended to curb perceived income‑splitting and tax planning advantages associated with discretionary trust distributions, particularly where income is streamed to lower‑taxed family members.
Although policy direction is set, the changes remain proposed and require legislation to pass Parliament before becoming law. Current guidance indicates an intended start date of 1 July 2028, giving trustees and advisers a multi‑year window to model impacts and consider restructuring.
Scale of impact: why “one million”?
The Tax Institute has warned that “given the scale and complexity of the proposed reforms, their potential to affect well over one million trust structures” warrants further consultation before laws are drafted. This figure reflects the broad reach of discretionary and hybrid trust structures used across small business, farming, investment portfolios, and family wealth planning.
The Federation of Asset Advice Associations (FAAA) noted that while only around 15 per cent of active small businesses operate through discretionary trusts, budget explainer material suggests roughly 350,000 active small business entities may need to decide whether to retain their trust structure or transition. When combined with non‑business family trusts, investment trusts, and hybrid arrangements, the total exposed population plausibly reaches the seven‑figure range cited by advisers.
Key concerns raised by industry
Professional bodies and adviser groups have lodged detailed submissions highlighting unintended consequences beyond the policy’s income‑splitting objective.
Over‑broad definition of discretionary trusts
The Tax Institute cautions that the proposed reliance on schedule 2F fixed trust rules to define “discretionary trusts” risks capturing commercial, investment, and employee equity structures that do not present genuine income‑splitting concerns. This could include trading trusts, co‑investment vehicles, and certain employee share plan trusts used for legitimate commercial purposes.
Corporate beneficiaries and effective tax rates
Under the current design, trust income distributed to corporate beneficiaries could face effective tax rates “substantially above 30 per cent”, and in some cases materially higher than Australia’s top marginal individual tax rate, due to interactions with existing company tax rules and non‑refundable credits. This creates planning distortions and potential double taxation for structures that currently use corporate beneficiaries for asset protection or succession reasons.
Restructuring costs and compliance burden
Member estimates suggest legal restructuring costs alone could range from approximately A$4 billion to A$13.3 billion nationally, with ASIC company registration fees potentially exceeding A$560 million if large numbers of trusts convert to companies. CPA Australia adds that if around half of the potentially affected businesses—roughly 105,000—restructure within a three‑year window, the national cost of professional advice alone would be at least A$1 to A$2.5 billion, before state stamp duty.
Businesses must also assess combined impacts with other reforms, including capital gains tax and negative gearing changes, foreign resident CGT rules, AML/CTF reforms, heightened ATO compliance activity, and proposed Division 7A changes following the High Court’s Bendel decision.
Farming and rural ownership structures
Primary producers face particular uncertainty around common rural ownership arrangements, especially where farmland is owned by one entity and operated through another related entity. Industry warns that without clear carve‑outs, the minimum tax could disrupt long‑standing succession and asset‑holding models in agriculture.
Partial relief: testamentary trusts exemption
Following political and industry pressure, the government announced on 18 June 2026 that genuine testamentary trusts would generally be exempt from the proposed minimum 30 per cent tax. The exemption typically applies where:
- Income is derived from assets originating from the deceased estate.
- For trusts established on or after 1 July 2028, beneficiaries are generally individuals or income tax‑exempt entities.
- Assets injected into the trust after Budget night (7.30pm AEST on 12 May 2026) that are unrelated to the deceased estate remain subject to the minimum tax.
This backflip preserves the estate‑planning role of testamentary trusts while still targeting inter‑vivos discretionary structures perceived as tax‑driven.
Business and lending implications
The Mortgage & Finance Association of Australia (MFAA) warns that restructuring from a discretionary trust to a company is not a simple transfer. Existing lending arrangements may need lender consent, refinancing, or variations to facilities, guarantees, and security. Brokers and businesses could face reassessment under current lending policies, creating additional cost, delay, and uncertainty.
MFAA and small business groups have called for carve‑outs or grandfathering for genuine small business trading trusts, particularly those with aggregated turnover below A$10 million, to avoid punishing commercially driven structures.
What trustees and advisers should do now
Given the potential scale and complexity, professional bodies urge proactive review even while legislation is pending:
- Map all trust structures and identify which are discretionary, fixed, hybrid, or testamentary.
- Model distribution strategies and effective tax rates under a 30 per cent minimum for 2026–27 and 2027–28.
- Assess asset protection, succession, and lending implications of any shift to company or individual ownership.
- Monitor state and territory duty exposure, as proposed Commonwealth rollover relief does not extend to state transfer duties.
- Track legislative progress and consultation outcomes, particularly around definitions, corporate beneficiaries, and small business or farming carve‑outs.