Treasury wants a 30% minimum tax on discretionary trusts. It is sold as a tax on the wealthy. In practice, it lands on small business families and the middle-class investors.
What Is a Discretionary Trust?
- A trustee holds assets for a family group.
- Nobody owns a fixed share.
- Each year, the trustee decides who gets what.
Around one million trusts lodge returns in Australia, most sitting behind ordinary small businesses. They have been the standard structure for forty years, because the law encouraged it.
Why Families Use One
Tax is only one reason, and rarely the biggest.
- Flexibility: Income goes where it is needed each year.
- CGT Concessions: Full access to the 50% discount and small business concessions. A company cannot pass these to shareholders. On a sale, the gap can run to hundreds of thousands.
- Asset Protection: Nobody owns anything until the trustee decides, so there is nothing for a creditor to attack.
- Succession: Control passes to the children with no CGT event and no transfer duty.
- No Division 7A Trap: Tax-free or discounted earnings reach the family intact, without the Top Up Tax (applicable to company dividends)
What Is Being Proposed
- Exposure drafts released 3 September 2026; consultation closed 18 September 2026.
- The trustee pays 30% up front on the trust’s income.
- The beneficiary gets an offset, but it is non-refundable.
- Anyone on a lower rate (a student, a parent on leave, a retiree) now faces a 30% floor.
- Company beneficiaries don’t even get the offset. They pay tax twice!
The trust pays 30%. The company is then taxed on the full distribution, with no credit. That is not a minimum tax, it is double tax (some call it daylight robbery!).
Who It Really Hits
- The Wealthy: Barely touched. Their beneficiaries already pay 30%+, and they can restructure out using top end advisors they can afford.
- The Middle Class investors: Hit hard! People who had built wealth in a trust, to enjoy in their retirement now pay minimum 30% tax.
- Small Business: Hit the hardest! The structure their accountant set up years ago for good reasons is now being used to catch them off-guard! They are caught between a rock and a hard place!
The Two Ways Out, and Why Neither Works
- The Election: Made in 2028–29 only. You fix beneficiaries and entitlements, and the 30% does not apply.
- The Rollover: A three-year window from 1 July 2027 to move into a company or fixed unit trust.
Both lock in today who gets the income, forever. Circumstances change; entitlements do not. You lose the annual decision that was the whole point, and capital gains suffer most.
The Numbers
A trust distributes $45,000 to an adult child:
| Child’s Other Income | Tax Today | Tax Proposed | Extra Tax |
|---|---|---|---|
| Nil | $4,652 | $13,500 | $8,848 |
| $20,000 salary | $11,052 | $13,500 | $2,448 |
| $45,000 salary | $19,052 | $19,052 | Nil |
The extra cost caps at about $9,000 per beneficiary and shrinks quickly once they earn elsewhere. Is that worth locking your family structure forever?
What To Do Now: Wait & Watch
- Don’t restructure yet. The rollover window runs to 2030.
- Don’t elect early. Wait for the final law.
- Expect changes. The bucket company double tax is the loudest objection.
- Keep the trust discretionary. Flexibility, asset protection, and succession are untouched.
- Model the cost per beneficiary. For most families, it’s a few thousand dollars a year, not a crisis.
- Rethink the bucket company. It was never a long-term answer.
The Bottom Line
The revenue comes from beneficiaries earning under $45,000, and the double tax falls on small business working capital. These are the families who open at six, close at eight, and put their house and lives the line. They used the structure the law told them to use. Now they are told it was a loophole. Is this the real policy intent?
Do not panic. Wait and watch. Fix nothing permanent on draft law. A discretionary trust with a narrower distribution list and no bucket company is likely to remain the better structure.
This article is general information only and is based on draft legislation that may change. It does not consider your personal circumstances. Please speak with us before acting.