Discretionary Trust 30% Minimum Tax: What's Coming July 2028

# Discretionary Trust 30% Minimum Tax: What's Coming 1 July 2028

If your family runs money through a discretionary trust — and roughly 850,000 Australian families do — the federal budget handed down on 12 May 2026 just rewrote the playbook. From 1 July 2028, every dollar distributed from a discretionary trust will be subject to a 30% minimum tax, regardless of which beneficiary receives it.

That single sentence ends a planning strategy that has shaped Australian-Chinese family wealth structures for three decades: splitting business and investment income across adult children, retired parents, and low-earning spouses to soak up the tax-free threshold and 15% bracket. After 1 July 2028, that arbitrage disappears.

The good news: you have a transition runway. The government has built in three years of capital-gains-tax rollover relief from 1 July 2027 to 30 June 2030, giving families time to restructure deliberately rather than panic-sell. The bad news: trust restructuring is one of the most technically complex areas of Australian tax law. Getting it wrong can trigger CGT events, stamp duty, Division 7A loans, and unwinding twenty years of accumulated unpaid present entitlements (UPEs). This is not a DIY exercise.

This guide walks you through what's changing, who feels it most, the worked example that makes the math click, and the questions to put to a specialist trust accountant in the back half of 2027.

What the rule actually does

Under the current Division 6 of the *Income Tax Assessment Act 1936*, a discretionary trust is — for tax purposes — a flow-through vehicle. The trustee determines each year which beneficiaries are "presently entitled" to trust income, and those beneficiaries pay tax on their share at their own marginal rate.

That creates a powerful planning lever. If the trust earns $200,000 of net income, the trustee can stream:

• $18,200 to a university-age child (taxed at 0%)
• $18,200 to a retired parent with no other income (taxed at 0%)
• $30,000 to a non-working spouse (taxed at the 15% bracket from FY2026-27)
• The balance to the working trustee at their marginal rate

The total household tax bill is dramatically lower than if one earner held all the income personally. This isn't a loophole — it's been Treasury-sanctioned for decades, and it's why family trusts are a cornerstone of small-business and professional-services structures in Australia.

From 1 July 2028, that splitting benefit is capped. The mechanism announced in the budget papers works like this:

In effect, the discretionary trust starts to look more like a private company from a tax-rate perspective, but without the franking-credit and Division 7A machinery that companies bring with them. That asymmetry is what makes the planning question so interesting — and so hard.

Why the government did this

The Treasurer's budget speech framed the measure as a fairness response. A 2024 Treasury working paper estimated that the average tax saving from family-trust streaming was concentrated in the top decile of household wealth, with the median benefit running between $4,000 and $9,000 per trust per year and the top percentile saving over $40,000. The new rule is forecast to raise $2.8 billion over the forward estimates and $11.2 billion over the medium term.

It's also part of a broader budget package that includes the CGT discount reform from 1 July 2027 and the negative gearing changes from 1 July 2027. Treasury sees these three measures as a single integrated response to wealth-concentration concerns — closing the gap between income earned from labour (taxed at full marginal rates) and income earned from capital and structures (historically taxed more lightly).

For families who use trusts genuinely — to protect assets from business risk, plan succession across generations, or hold a family-business operating entity — the structure still has value. What changes is the income-splitting subsidy that came along for the ride.

The worked example that makes it concrete

Let's walk through a typical Australian-Chinese family scenario. Meet the Lin family:

• Wei runs an IT consultancy. The business is owned by Lin Family Trust, with Wei's company acting as trustee.
• Mei (Wei's wife) works part-time and earns $15,000 from a separate employer.
• Daniel is 22, studying a Master's degree, no other income.
• Sophie is 19, working casually at a café earning $12,000.

The trust earns $200,000 of net business income in FY2028-29 (the first year the new rules apply).

Under the current rules (FY2027-28 and earlier)

The trustee streams:

Effective tax rate on the trust's $200,000: 23.1%.

Under the new rules (FY2028-29 onwards)

Every distribution faces a 30% minimum, then the beneficiary's higher marginal rate (if any) is applied on top:

*FY2027-28 bracket of $18,201–$45,000

Effective tax rate on the trust's $200,000: 32.2%.

The annual cost to the Lin family: roughly $18,000. Over a decade — and trusts are typically multi-decade structures — that's the deposit on a house.

The sharpest sting is Daniel and Sophie. Under the old rules they paid $0; under the new rules they (or the trustee on their behalf) pay $7,320 combined on the same distributions. That's the change Treasury is buying $2.8 billion of revenue with.

Who feels it most

The families with the biggest planning gap are:

Families who won't feel much impact:

• Trusts where the working trustee already absorbs most distributions personally at 37%+ marginal rates. The 30% floor is below them; no change.
• Trusts that distribute mainly to a beneficiary already on the 30% bracket or above ($45,001+ taxable). Effectively neutral.
• Charitable distributions. Distributions to a deductible gift recipient or registered charity are excepted from the 30% floor — this is explicitly preserved in the budget paper.
• Testamentary trusts created by a deceased estate, which already have a specific concessional regime for minor beneficiaries and sit outside the budget measure.

The three-year rollover relief window

The budget's most important transitional concession is the capital-gains rollover relief running from 1 July 2027 to 30 June 2030. During this window, families can restructure — moving assets out of a discretionary trust and into a unit trust, a private company, or directly to individuals — without triggering immediate CGT.

Three years is generous by Australian standards, but it's also not a lot of time when you're talking about commercial property valuations, business succession, and finding a structure that still works for *non-tax* reasons (asset protection, succession, family-law isolation, lending-bank requirements). Expect the back half of 2027 and all of 2028 to be the peak demand period for trust-specialist accountants — book early.

The rollover is widely expected to come with strict conditions, drawing on the existing Subdivision 124-N and Division 615 mechanics:

• The same beneficial ownership must continue post-restructure.
• Stamp duty in your state may or may not have its own concession — Victoria, NSW, and Queensland have historically offered corporate-reconstruction relief but with their own thresholds.
• Pre-CGT assets (acquired before 20 September 1985) need special handling to preserve their pre-CGT status through the restructure.
• Unpaid present entitlements (UPEs) sitting in the trust — money the trust "owes" beneficiaries but hasn't paid — need to be untangled before any clean restructure.

None of this is reason to delay the conversation. Quite the opposite: families with complex UPE histories or pre-CGT assets need the *most* lead time, and the 30 June 2030 cut-off is a hard deadline.

What to discuss with your accountant — a checklist

Book a sit-down with a specialist trust accountant (not just a generalist; you want someone who has restructured trusts before) between September 2027 and March 2028. Bring:

• Your current trust deed (and any amendments — many trusts have been amended multiple times)
• Family trust election (FTE) and interposed entity elections, if made
• The trust's last five years of distribution statements
• A list of trust assets with cost bases and current valuations
• The current UPE ledger (your accountant should already have this)
• A list of beneficiaries and their other income sources

Questions worth raising:

What NOT to do

• Don't act without specialist advice. Trust restructuring intersects with CGT, stamp duty, Division 7A, family law, and superannuation rules. The cost of getting it wrong is measured in five figures minimum.
• Don't rush before legislation is finalised. The budget announcement is a policy statement; the actual rules will be drafted, consulted on, and passed through Parliament during 2026 and 2027. Wait for the exposure draft before making irreversible moves.
• Don't distribute aggressively in 2027-28 thinking you're "using up" the old rules. That may trigger Part IVA general anti-avoidance scrutiny if the ATO (ATO guidelines) sees the distributions as artificial — and large lump distributions to low-income beneficiaries are exactly the pattern auditors will flag.
• Don't assume your existing structure is wrong. A discretionary trust has many non-tax benefits — asset protection, succession flexibility, family-law isolation, business-banking facility. The tax math has changed; the structural benefits haven't.

How AusTax AI helps in the meantime

AusTax AI is built for individual taxpayers, not trust accountancy. We can't restructure your trust, draft a unit-trust deed, or model the stamp-duty impact of a corporate restructure. What we can do during this transition window:

• Track your personal income receipts, work-related deductions, and PAYG situation as a beneficiary or trustee — so when your accountant asks "what's your other income?" you have it ready.
• Run the tax refund calculator to model your personal tax position with and without trust distributions.
• Hold a complete five-year history of your personal receipts and AI-analysed deductions, available as a professional export to share with your trust specialist.
• Keep you informed via our budget changes summary as the legislation evolves through 2026-27.

The trust restructure itself is a job for a registered tax agent with deep trust experience. Find one, book early, and use 2027-28 to plan deliberately rather than reactively.

Frequently Asked Questions

Does the 30% minimum tax apply to all trusts?

No. The measure as announced targets discretionary trusts — the kind where the trustee chooses each year who receives income. Unit trusts (fixed entitlements), bare trusts, and testamentary trusts created by a deceased estate are not covered by the headline rule, though the exact legislative perimeter will be confirmed in the exposure draft expected in 2027.

What if my discretionary trust only distributes to beneficiaries already in the 30%+ tax bracket?

You're largely unaffected. The 30% is a floor, not a ceiling, so distributions that would already attract 30% or more under the beneficiary's marginal rate continue exactly as they do today. The change only bites where the beneficiary's marginal rate would have been below 30% — typically distributions to adult students, retired parents, or non-working spouses.

Are franked dividends affected?

Franked dividends distributed through a trust keep their franking credits — the imputation system is untouched. What changes is the rate the franking credit is offset against. If your low-income beneficiary previously received a refund of excess franking credits because their marginal rate was below the company tax rate, that refund will shrink or disappear once the 30% floor applies to their share. Speak to your accountant about whether moving share-portfolio income out of the trust makes sense.

What happens if I do nothing and just keep distributing the same way after 1 July 2028?

The trust continues to operate; nothing in the rule forces you to restructure. You'll simply pay more tax — the difference between your beneficiaries' previously low rates and the new 30% floor. For some families with simple structures and modest distributions, accepting the extra tax may be cheaper than the cost of restructuring. For high-distribution trusts the math typically favours restructure within the rollover window.

Can I move trust assets to my own name during the rollover window?

In principle yes, but the conditions on the rollover relief will determine whether "same beneficial ownership" includes individual beneficiaries or only entity-to-entity restructures (trust to unit trust, trust to company). State stamp duty will also be a major factor — some states tax transfers from a trust to a natural-person beneficiary even when CGT is rolled over. Wait for the exposure draft and confirm with both your accountant and a property lawyer if real estate is involved.

Are charitable distributions still tax-effective?

Yes. Distributions to a deductible gift recipient (DGR) or registered charity are explicitly excepted from the 30% floor in the budget announcement. The deductibility of the original donation by the trust (where applicable) is also unchanged. This is consistent with the budget's broader posture of preserving genuine philanthropic structures.

What about minors? Aren't they already taxed at the top marginal rate?

Correct — distributions to a beneficiary under 18 are already subject to Division 6AA punitive rates (currently 45% on amounts above $416). The new 30% floor doesn't worsen the minor's position; it only changes the calculus for adult beneficiaries on low marginal rates, which is where most of the historical splitting benefit has lived.

Related guides

• Federal Budget 2026: Personal Tax Changes at a Glance — the full package summary
• CGT Discount Reform from 1 July 2027 — what the 50% discount becomes
• Negative Gearing Changes from 1 July 2027 — the property-investor companion piece

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*This is general information only — not legal or financial advice. Trust law is one of the most technically complex areas of Australian tax, and the federal measure announced in the 2026-27 budget has not yet been enacted. The final legislation may differ in important ways from the announcement summarised here. For your specific situation — especially decisions about restructuring, capital-gains rollover relief, stamp duty, and Division 7A — you must consult a registered tax agent with specialist trust experience before taking any action.*