One of the most significant tax announcements in the 2026 Federal Budget was the proposal to introduce a minimum tax on discretionary trusts.
Importantly, this measure is currently announced but not yet law.
How Are Trusts Taxed Today?
Generally, discretionary trusts operate as a flow-through structure.
Income is typically distributed to beneficiaries, who then pay tax at their own marginal rates.
What Has Been Proposed?
The Government has announced a proposal to introduce a 30% minimum tax on discretionary trusts from 1 July 2028.
The tax would be paid at the trustee level before distributions are effectively taxed in the hands of beneficiaries through a credit mechanism.
Which Trusts May Be Impacted?
Based on announcements to date, the proposal primarily targets discretionary trusts. Certain trust types are proposed to be excluded.
Why Is This Important?
Many business owners and investors use discretionary trusts for:
- Asset protection
- Succession planning
- Business ownership
- Investment structures
Any change to trust taxation may influence future distribution strategies and business structures.
Should You Restructure Now?
At this stage, we generally recommend caution.
Because the legislation is not yet finalised, restructuring solely based on announcements may be premature.
Final Thoughts
The proposed trust measures may represent one of the most significant changes to family trust taxation in decades.
If you currently operate through a discretionary trust, now is an excellent time to review your structure and understand how future changes could affect your family or business.
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