Proposed Changes to Discretionary Trust Minimum Tax: What You Need to Know

A recap of the proposed changes

As announced in the Federal Budget, the Government intends to introduce a minimum 30% tax on the taxable income of discretionary trusts from 1 July 2028. The reform is designed to more closely align the taxation of trust income with the tax rates paid by individual wage and salary earners.

Under the proposal, trustees would be responsible for calculating and paying the minimum tax. Individual beneficiaries would continue to include trust distributions in their tax returns and would generally receive non-refundable tax credits for tax already paid by the trustee.

Key details included in the draft legislation

Following consultation on the Government’s initial proposals, the exposure draft introduces several measures intended to provide greater flexibility and reduce restructuring costs.

Most notably, discretionary trusts may be able to elect into a new fixed distribution arrangement by nominating beneficiaries to receive fixed distributions. This could allow certain trusts to be exempt from the minimum tax without requiring a formal restructure to another entity type. The Government has also indicated that this election is not expected to trigger state or territory stamp duties, which may make it a more practical alternative for some taxpayers.

The draft legislation also outlines several key implementation measures, including:

• Expanded roll-over relief available for three years from 1 July 2027 for taxpayers who choose to restructure from a discretionary trust into another structure.
• A new definition of fixed trusts intended to ensure commercial trust structures without material discretionary elements are not unintentionally captured by the rules. This is expected to include a range of commercial trust structures such as widely held trusts, managed investment trusts, bare trusts and employee share trusts.

Who is excluded?

The Government has confirmed that a number of trust types and income categories will remain outside the scope of the minimum tax.

Proposed exclusions include:

• Charitable trusts
• Special disability trusts
• Superannuation funds
• Deceased estates
• Genuine testamentary discretionary trusts
• Primary production income
• Certain income relating to vulnerable minors

The draft legislation also provides exemptions for distributions made to registered charities and deductible gift recipients (DGRs). Certain distributions to other tax-exempt entities, such as sporting clubs, are also expected to remain exempt, subject to a cap that will be finalised following consultation.

What does this mean for business owners and families?

Although the Government has stated that fewer than 10% of Australia’s active small businesses are expected to be affected in any given year, the proposed measures could have significant implications for those who currently use discretionary trusts as part of their business, investment or succession planning arrangements.

The release of the exposure draft gives trustees and advisers an opportunity to better understand the practical operation of the rules and assess whether existing structures remain appropriate under the proposed regime.

As the legislation is still in draft form, further changes may occur before the reforms are finalised.

What should you do now?

At this stage, there is no requirement to immediately restructure existing arrangements. However, trustees and business owners may benefit from reviewing their current trust structures and considering the potential impact of the proposed changes.

With consultation remaining open until 18 September 2026, further refinements to the legislation are possible before it is introduced to Parliament.

The proposed changes have the potential to affect a wide range of business, investment and succession planning structures. If you operate through a discretionary trust or are unsure how these proposals may affect your position, speaking with your adviser can help you understand the options available and plan ahead.

Perks Tax Consulting Team can help you assess the impact on your circumstances, understand the opportunities and risks, and determine whether any action may be required as the legislation progresses. Whether you’re a business owner, investor or trustee, we’re here to help you prepare for what’s next.