Why the change?

In short: same income, same tax. Australia has about 840,000 discretionary trusts distributing $142.4 billion a year, and splitting that income among low-rate family members lets trust families pay around 4 percentage points less tax than wage earners on the same income, an option employees do not have. A 30% minimum tax brings trust income into line with what middle-income workers pay, while the rollover relief nudges business owners toward company structures and returns trusts to what they do best: asset protection and succession planning.

What is changing

The 2026-27 Budget signals the end of tax-efficient income streaming from discretionary trusts, which will be subject to a 30% minimum tax paid by the trustee on the trust’s taxable income, regardless of whether that income is distributed. Beneficiaries other than companies will receive non-refundable credits for the tax paid by the trustee. Therefore, where income is already distributed to beneficiaries taxed at 30% or more, there is no overall increase. Corporate beneficiaries will receive no credit, which is aimed at ending the use of ‘bucket companies’ to cap tax at corporate rates. This measure is set to take effect from 1 July 2028. For many family groups and private business owners, discretionary trusts have long been a central wealth structuring tool that enabled income to be distributed to beneficiaries on lower marginal rates. That flexibility will be materially curtailed under the new framework.

Exemptions and the restructuring window

The Government has indicated a number of excluded categories, however, the final scope will depend on the drafting of the legislation. Unlike the CGT and negative gearing measures, legislation for this measure has not yet been introduced into Parliament. Exemptions apply to fixed and widely held trusts, complying superannuation funds, special disability trusts, deceased estates and charitable trusts. Certain income is also carved out, including primary production income, certain income of vulnerable minors, amounts subject to non-resident withholding tax, and income from assets of testamentary trusts existing as at Budget night. Importantly, the Government has also announced a 3-year CGT-relief restructuring window from 1 July 2027 to 30 June 2030, during which assets can be moved out of discretionary trusts with rollover relief from income tax consequences, including CGT. The relief does not extend to state taxes, so transfer duty may still apply where property is moved, and the detail of the rollover remains subject to consultation. This provides a meaningful runway for those needing to reorganise existing structures.

What you should do now

For trustees, advisers and beneficiaries, the priority now is understanding whether existing trust structures fall within the exemptions and, if not, whether restructuring is warranted before the 2028 commencement date. Given the interaction with the CGT reforms and the three-year relief window, early planning is critical. Decisions made or deferred in the next 12 months are likely to have long-term consequences for family wealth structures. We recommend a comprehensive review of any discretionary trust arrangements with your legal and tax advisers.