Discretionary Trust Minimum Tax 2028: Planning Strategies for Australian Family Business Owners

Australian family businesses have relied on discretionary trusts for decades to hold investments, run operations, protect assets and split income among family beneficiaries. That’s set to change. On 12 May 2026, as part of the Federal Budget, the government confirmed a proposed 30 per cent minimum tax on discretionary trusts, due to start from 1 July 2028. A three-year restructuring rollover window will also open from 1 July 2027 for eligible small businesses that want to move into a different structure.

For family business owners, none of this means abandoning a trust structure that’s worked well for years. It does mean starting your trust tax reform planning now, while there’s still time to review beneficiary arrangements, deed wording, distribution habits and the overall shape of the private group. A proper review now can protect what the business is worth, support the next generation taking over, and flag tax-effective business structures well before the legislation is locked in.

 

Understanding the Proposed Discretionary Trust Minimum Tax

The proposed discretionary trust minimum tax Australia measure applies a flat 30 per cent rate at the trustee level on discretionary trust income, according to the Australian Taxation Office. Non-corporate beneficiaries who are presently entitled to trust income will get a non-refundable tax credit for the trustee’s tax, but there’s a catch: if their marginal rate sits below 30 per cent, the excess credit simply disappears. Corporate beneficiaries miss out on the credit altogether, which is designed to stop bucket companies converting the credit into refundable franking credits down the track.

The policy forms part of wider Australian tax reform, and it takes direct aim at the income-splitting benefit that’s made discretionary trusts so popular with family businesses. Trustees and beneficiaries shouldn’t lock in decisions based on early commentary alone. Final legislation will settle exactly which trust income is caught, how the tax is calculated, and how credits and franking interact. For now, treat the proposal as a trigger to review your structure, not as a finished law.

 

Why the Policy Status Still Matters

The proposed family trust tax changes Australia remain in development. Treasury has flagged that further consultation and drafting will settle the practical detail of the minimum tax on discretionary trusts, including how the tax is actually collected and how corporate beneficiary distributions will be handled. You can track the government’s own summary on the Treasury website.

This is a reasonable argument for caution rather than a rushed restructure. No grandfathering has been proposed, meaning existing trusts will be caught from 1 July 2028 regardless of how long they’ve been running. A restructure that looks attractive today could play out differently once transitional rules, eligibility conditions and state-level duty relief are finalised. Review your options now, keep your structure flexible, and act once the commercial and legal case actually stacks up.

 

Why Australian Family Businesses Should Start Planning Now

The changes are likely to touch how family groups use discretionary trusts to hold trading income, shares, commercial property, and passive investments. For most owners, the headline tax rate isn’t the whole story. It’s the flow-on effect on cash flow, family distributions, reinvestment capacity, asset protection and succession that really matters.

Australian family business tax strategies need to start with a full picture of the private group: the discretionary trust, the trustee company, the trading entity, any bucket company, all beneficiaries, investment assets, loans and unpaid present entitlements. Bentleys’ tax advisory team works through exactly this kind of mapping exercise with family businesses before recommending any change.

Starting early buys options. It gives a family group time to tidy up governance, clarify who owns what, and put itself in a stronger position long before any restructuring decision needs to be locked in.

 

Income Splitting Rules Are About to Change

Income splitting rules Australia 2028 will become a central issue for family trusts. Historically, discretionary trusts have offered flexibility because trustees can distribute income among eligible beneficiaries according to the deed and the tax rules of the day.

If the 30 per cent minimum trust tax goes ahead as announced, family trust income splitting alternatives will become genuinely relevant for the first time in a long while. The Budget’s own modelling shows the gap clearly: a beneficiary on a marginal rate below 30 per cent will end up paying more tax overall once the non-refundable credit is factored in, because the excess simply can’t be recovered. Business owners will need to check whether their current distribution habits still deliver the balance they want between tax efficiency, fairness and family cash flow.

Distribution planning won’t disappear. It just needs to be based on updated modelling for the 2028 rules rather than on the pattern that’s been used for the past ten years.

 

Trustee-Level Tax Needs Careful Modelling

Trustee level tax Australia is going to demand more attention from private groups than it has in years. Trustees need to understand how the minimum tax could affect income kept inside the trust, income sent to family members, and income directed to a corporate beneficiary.

Franking credits add another layer. Where a trust receives franked dividends, the trustee will be required to apply those credits against the minimum tax bill first, rather than passing them straight through to beneficiaries. Non-refundable tax credits trust beneficiaries receive, and how that credit is recognised when a beneficiary lodges their own return, are both details still being finalised. Until the law is settled, don’t assume today’s outcomes will simply carry over.

Good modelling compares several scenarios side by side: keeping the current trust as-is, changing distribution patterns, moving future trading income into a company, or separating the operating business from the assets it owns.

 

Bucket Companies Face a Harder Road Ahead

Plenty of family groups use a corporate beneficiary, commonly called a bucket company, to cap tax on retained profits at the company rate. The proposed bucket company tax changes 2028 will force a rethink of these arrangements, because corporate beneficiaries are specifically excluded from the non-refundable credit.

Corporate beneficiary double taxation Australia is a real risk under the design as it stands. One illustration doing the rounds among advisers: a company earns $100,000 of profit, the trust pays 30 per cent minimum tax on the way through, and the same profit is then taxed again inside the corporate beneficiary, before any further tax on an eventual dividend to an individual. Depending on the final mechanics, that combination could push the effective rate on those profits well past 60 per cent by the time cash reaches a family member.

That’s a strong reason to look at bucket companies alternatives Australia sooner rather than later, as part of a broader private group strategy. This might mean deciding where future profits should actually be earned and retained, rather than defaulting to the same bucket company structure for every purpose.

 

Some Trusts and Income Will Sit Outside the New Rules

The government has confirmed that some discretionary trust income will be excluded from the minimum tax altogether. Fixed and widely held trusts, complying superannuation funds, special disability trusts, deceased estates and charitable trusts are all expected to fall outside the measure, along with income from primary production.

Fixed trust tax exemptions Australia may be relevant for some private groups, though a fixed trust isn’t automatically the right fit for every family business. Fixed trusts typically offer less distribution flexibility, and swapping to one can create its own commercial, legal and succession complications.

Genuine testamentary trusts are also expected to be exempt, subject to further conditions once the legislation is drafted. Families weighing this up as part of a broader estate plan can find more detail in Bentleys’ guide to effective estate planning, which covers how testamentary and protective trusts fit alongside a will.

 

Trust Deeds Need a Proper Review

A trust deed sits at the centre of discretionary trust tax planning. It determines who can benefit, how the trustee can split income and capital, whether streaming is allowed, and what has to be documented when a decision is made.

Before considering any restructure, get the deed reviewed properly. Plenty of older deeds don’t reflect the current business structure, the family as it exists today, or where succession is actually heading.

A deed review often turns up issues with appointor powers, trustee replacement rights, beneficiary classes and how income versus capital is treated. These points can matter just as much as the tax outcome itself.

 

Family Trust Elections Deserve Attention Too

Family trust election amendments become relevant whenever a family group is considering structural change, adding new entities, or revisiting who counts as a beneficiary. A family trust election carries real tax consequences, particularly if distributions end up going outside the permitted family group.

Get your family trust election position checked before changing trustees, beneficiaries, ownership, or distribution policy. A change made without checking this first can create unnecessary tax exposure or lock in less flexibility down the track.

This is worth reviewing alongside the broader discretionary trust legislation changes rather than treating it as a separate compliance task.

 

Keep Distribution Minutes Accurate and On Time

Trust distribution minutes remain a basic but essential part of family trust compliance. Trustees need annual distribution decisions made in line with the deed and properly documented before the relevant deadline each year.

As the minimum tax develops, good records become even more important. Clear minutes show how income was allocated, why the trustee made that call, and whether it acted within its powers under the deed.

Solid record-keeping also supports Australian Taxation Office trust compliance more broadly, giving the business a stronger footing if an adviser has questions, the ATO reviews the trust, or the rules shift again down the track.

 

Don’t Overlook Unpaid Present Entitlements

Unpaid present entitlements trust tax issues crop up when a beneficiary becomes entitled to trust income, but the cash stays in the trust or gets used by another entity in the group. These arrangements can affect cash flow, loan accounts, and the broader tax risk sitting across the private group.

Family businesses should review unpaid present entitlements alongside related-party loans, company transactions and retained profits. The aim isn’t just cutting tax. It’s making sure legal entitlements, cash movements and the accounting records all line up with each other.

Solid governance here also reduces the risk of corporate beneficiary tax penalties and other compliance headaches down the track.

 

Discretionary Trust, Company or Fixed Trust: What Fits Your Business?

There’s no single right answer to the discretionary trust versus fixed trust Australia question. Each structure carries its own strengths and trade-offs.

A discretionary trust can offer flexibility for family distributions and useful asset protection strategies. A company gives a cleaner ownership structure and lets a business retain earnings to fund growth. A fixed trust can suit situations where defined ownership interests are a commercial necessity, such as where outside investors need certainty over their entitlement.

The right choice comes down to the business model, risk profile, growth plans, family relationships, funding needs and long-term ownership goals. Tax matters, but it shouldn’t be the only thing driving the decision.

 

Restructuring a Family Trust Into a Company

Restructuring family trust to company arrangements is likely to become more common where a discretionary trust runs an active business and the family wants clearer ownership, more capacity to retain profit, or a cleaner succession path.

That said, a restructure out of discretionary trust can trigger capital gains tax, stamp duty, contract renegotiation, finance approvals, licence transfers and staffing issues. It’s never a simple administrative change, and it shouldn’t be treated as one.

Good trust asset restructuring advice weighs up both the upfront cost and the longer-term benefit. Often the best outcome has a company running the operating business while the trust keeps hold of investment assets or family wealth.

 

Making the Most of the Rollover Relief Window

The government has confirmed a small business rollover relief window running for three years from 1 July 2027, aimed at eligible businesses restructuring in response to the trust changes.

Australian small business restructuring rollover options may cut the tax friction of moving assets or operations from one entity to another. Eligibility conditions, timing and asset requirements will all matter, and one industry commentary has already flagged that federal relief alone won’t help much if state and territory stamp duty isn’t coordinated alongside it.

Use this window with a plan rather than in a rush. Get detailed modelling done, take proper legal and tax advice, and check whether restructuring genuinely helps beyond just avoiding the minimum trust tax.

 

Capital Gains Tax Still Needs Careful Handling

Capital gains tax reform discretionary trusts may affect both the timing and shape of any restructure. Moving assets between entities can trigger capital proceeds and change what concessions are still available.

The government has said existing small business CGT concessions will stay in place for eligible businesses, with the turnover threshold for the active asset reduction proposed to rise. CGT rollover relief for family businesses may be genuinely useful, but don’t assume it applies automatically. Every asset, entity and transaction needs its own check before anything is implemented, particularly where the group holds commercial property, goodwill, shares or other valuable investments.

 

Asset Protection Still Matters

Trust asset protection strategies Australia remain important no matter what happens with tax rules. Family businesses often use trusts precisely to separate operating risk from valuable assets and protect long-term family wealth.

A restructure shouldn’t weaken asset protection just to chase a perceived tax saving. Weigh up creditor risk, personal guarantees, property ownership, insurance, and how operating entities relate to the entities holding the assets. Bentleys’ work with private families on integrated governance and protection, outlined in its piece on the modern family office, points to how these decisions connect with wider wealth planning.

A well-designed structure should hold up commercially and still be tax efficient. Neither should come at the total expense of the other.

 

Succession Planning Needs a Longer Lens

Family business succession planning tax considerations need to sit inside the broader ownership plan, not off to one side. The minimum tax may shape how income and assets get managed year to year, but succession also has to deal with control, decision-making and who actually runs the business next.

Intergenerational wealth transfer tax planning touches wills, testamentary trusts, shareholder agreements, appointor succession, business valuation and family governance. These decisions can shape the business’s future more than any single year’s tax bill. Bentleys’ guide to business owner retirement planning walks through how these pieces fit together at the point of transition.

Keep an eye on how discretionary testamentary trust 2028 rules develop too, as the government finalises the conditions attached to the testamentary trust exemption.

 

ATO Compliance and Getting the Right Advice

Australian Taxation Office trust compliance stays important regardless of what reform eventually looks like. Trustees need clear financial records, distribution minutes, tax returns, beneficiary documentation and paper trails for major transactions.

The reforms are likely to add complexity to private-group tax arrangements. Bringing in an Australian private wealth tax adviser, accountant and lawyer together, rather than in sequence, helps keep tax, legal and commercial considerations aligned.

Keep watching for Division 6 ITAA 1936 amendments, consultation papers and ATO guidance as the government works through implementation.

 

A Practical Path Forward

Start with the current structure. List every trust, company, beneficiary, asset, loan and distribution arrangement sitting within the group, so nothing gets missed.

From there, model the likely outcomes under a few different scenarios: keeping the trust as-is, changing distribution patterns, using a company for future operations, restructuring particular assets, or moving to a fixed trust where that genuinely fits. Bentleys’ business advisory team can run this modelling alongside a broader look at where the business is heading commercially, not just at tax in isolation.

Implementation comes last. Document any change carefully, time it properly, and check it against the final legislation once it lands, not just the current proposal.

 

The Takeaway

The proposed discretionary trust minimum tax 2028 is a significant shift for Australian family businesses that have built their structures around discretionary trusts. The legislation isn’t finished yet, but the direction is clear enough: trust deeds, distribution habits and private-group arrangements deserve a proper look now, not after 1 July 2028.

Start with a deed review, check where bucket companies and unpaid present entitlements sit in the group, and line up asset ownership against your succession plan. The team at Bentleys chartered accountants can work through this with you this financial year, while the rollover relief window is still open and there’s still room to plan properly rather than react.

 

Disclaimer: This information is general in nature and should not be relied on as advice. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs and seek professional advice before making any decisions based on this information.

 

FAQs

What is the discretionary trust minimum tax starting in 2028?

The discretionary trust minimum tax is a proposed tax reform announced in the Australian Federal Budget. Starting 1 July 2028, the Australian Taxation Office (ATO) will require trustees of discretionary trusts to pay a baseline 30 per cent minimum tax on the trust’s taxable income, altering the traditional flow-through tax status of these structures.

How does the 2028 trust tax change affect individual beneficiaries?

Under the new rules, individual beneficiaries must still declare trust distributions in their personal tax returns. However, they will receive a non-refundable tax credit for the 30 per cent tax already paid by the trustee, meaning top-up tax applies if their personal marginal rate is higher, but excess credits are lost if their rate is lower.

Why is the Australian Government introducing a minimum tax on family trusts?

The policy objective is to improve tax fairness and sustainability by narrowing the gap between tax paid on discretionary trust income and wages earned by everyday workers. It directly targets income splitting strategies, ensuring trust distributions are floored at the 30 per cent marginal rate applicable to standard wage earners.

What happens if a beneficiary’s marginal tax rate is below 30 per cent?

If an Australian individual beneficiary has a personal marginal tax rate below 30 per cent (such as a non-working spouse or adult student), they will lose the excess value of the credit. Because the trustee-level tax credit is strictly non-refundable, it cannot trigger a tax refund from the ATO.

Will bucket companies still be effective for tax planning after 1 July 2028?

The effectiveness of corporate beneficiaries, or bucket companies, will be materially reduced. The proposed legislation denies non-refundable tax credits to corporate beneficiaries, creating a significant risk of double taxation at both the trust level and the corporate level.

What is the effective tax rate if a family trust distributes to a corporate beneficiary?

Without legislative relief, a distribution to a bucket company could face a 30 per cent trustee tax followed by standard corporate tax on the same income. Indicative financial modelling suggests this could drive the effective tax rate up to roughly 51 per cent before eventually being distributed to individuals.

Are there any trust structures excluded from the 2028 minimum tax?

Yes, the proposed changes specifically exclude certain trust categories. Fixed trusts, widely held trusts, complying superannuation funds, special disability trusts, charitable trusts, and standard deceased estates are not expected to be subject to the 30 per cent floor.

Is primary production income exempt from the 30 per cent trust tax?

Yes, the Australian Government has indicated that primary production income will be excluded from the trustee-level minimum tax. However, primary producers holding agricultural land within a discretionary trust may still need to review their asset structures for overall compliance.

What options do Australian family businesses have to transition out of a discretionary trust?

To assist private business groups, the Government is introducing an expanded small business rollover relief window. This transition period allows eligible businesses to restructure out of discretionary trusts into other structures, like companies or fixed trusts, with minimized tax friction.

When does the small business restructure rollover relief become available?

The expanded rollover relief window is scheduled to open on 1 July 2027, a full year before the minimum tax takes effect. The transitional relief program will remain available to Australian businesses for three years.

Will existing family trusts be grandfathered under the 2028 tax rules?

No grandfathering arrangements apply to the general operation of existing family trusts. Both newly established and long-standing discretionary trusts will automatically be captured by the 30 per cent minimum tax framework from 1 July 2028.

How will capital gains tax discounts interact with the trust minimum tax?

The trust minimum tax operates alongside separate proposed capital gains tax reforms starting 1 July 2027. This creates a dual tax floor where the advantages of streaming a discounted capital gain to a low-rate family beneficiary are heavily restricted.

What happens if an existing testamentary trust buys a new investment asset?

Income derived from any asset acquired by a testamentary trust after the budget announcement will likely be captured by the 30 per cent minimum tax. Reinvesting proceeds from a sold pre-budget asset into a new asset may trigger the new tax rules.

Will family trusts still be useful for asset protection after 2028?

Yes, the core legal benefits of a family trust remain unchanged. While the year-to-year income tax splitting advantages will be reduced, discretionary trusts remain highly effective vehicles for wealth succession, estate planning, and protecting commercial assets from creditors.

How will franking credits be handled under the new trustee-level tax?

The rules surrounding franking credit utilisation are tightening to prevent groups from circumventing the minimum tax floor. The ATO and Treasury are consulting on how excess franking credits will interface with the trustee’s 30 per cent tax liability.

Do these changes impact Division 7A planning for private groups?

Yes, because traditional bucket company distributions are being penalised under the new framework, the accumulation of unpaid present entitlements will shift. Australian family groups must completely revise their Division 7A compliance and corporate loan strategies.

What is the risk of keeping a family trust unchanged until 2028?

Waiting until the 1 July 2028 deadline leaves limited time to execute a tax-effective business restructure. Failing to act early could result in automatic tax exposure on distributions made to lower-income family members or corporate entities.

Can a discretionary trust be converted directly into a fixed trust?

While technically possible, converting a trust structure requires a precise legal process to avoid creating a resettlement, which triggers capital gains tax. Business owners must look to utilize the upcoming statutory rollover relief to safely adjust trust terms.

Will state taxes like stamp duty apply during a small business restructure?

The Federal Government’s rollover relief addresses federal capital gains tax, but state-based costs like stamp duty or transfer duty depend on individual state and territory legislation. True restructuring flexibility will require cooperative state-level relief.

How does the minimum tax apply to non-cash trust distributions?

The preliminary budget papers remain silent on the precise administrative treatment of non-cash distributions, such as the allocation of physical trust property or book-entry loans back to the trust, which will require clarification in the draft legislation.

Will trustees face extra bookkeeping and compliance burdens?

Trustees will face a higher administrative workload. They will be required to track different income streams, segregate excluded income types, calculate the 30 per cent minimum tax up front, and issue precise tax credit statements to individual beneficiaries.

How does the 2028 trust tax affect Section 99A tax rates?

Section 99A of the Income Tax Assessment Act 1936, which taxes accumulated trust income at the top marginal rate of 47 per cent, stays in place. The 2028 reform introduces a 30 per cent floor for distributed income, rather than replacing the top penal rate for unallocated funds.

Should Australian will makers still include testamentary trusts in their estate planning?

Wills should be drafted with maximum structural flexibility. If asset protection and family succession are the primary goals, a testamentary trust remains valuable, but if the sole objective is tax minimisation, fixed structures must be evaluated.

What immediate actions should an Australian family business owner take?

Business owners should meet with their specialized tax advisors to complete financial modelling on their current trust distributions. Reviewing asset structures now allows groups to prepare for the transitional rollover relief window opening in 2027.