Discretionary Trusts and the 30% Minimum Tax: Should You Restructure?
- Andre Dirckze
- 3 days ago
- 16 min read
From 1 July 2028, every discretionary trust in Australia faces a 30% minimum tax. A three-year restructure window opens 1 July 2027. Here's how to think about it.
By Andre Dirckze, Principal Adviser, Wealth Effect Group
Article 3 of our detailed Federal Budget 2026–27 series. For the overview briefing, see [link to hero article].
Why this article matters more than the headlines suggest
Of the three major reforms in this Budget — CGT, negative gearing and trusts — the trust reforms received the least coverage. They will produce the most long-lasting changes to how Australian family wealth is structured.
There are roughly 920,000 discretionary trusts in Australia. They sit at the centre of small business operations, family investment portfolios, asset protection structures, and intergenerational wealth strategies for hundreds of thousands of families. They are not, as some of the political framing has suggested, the exclusive preserve of high-net-worth tax minimisers. They are middle-Australia and small-business-Australia infrastructure.
From 1 July 2028, every one of them faces a 30% minimum tax on taxable trust income. The mechanics are layered, the exclusions are numerous, the restructure relief is meaningful, and the decisions warrant proper professional advice — not headline reactions.
This article walks through what changed, who is affected, the three-year restructure window, and the framework for deciding whether your trust structure remains fit for purpose.
Before we start, the most important point: do not dismantle, collapse or restructure a working discretionary trust based on what you read here, in the news, or anywhere else without first having your specific position modelled with your accountant and financial adviser. The decisions are complex, the alternatives are many, and the cost of getting this wrong is significant and durable.
What changed: the mechanics
From 1 July 2028, the trustee of a discretionary trust must pay a minimum 30% tax on the trust's taxable income, paid as a separate liability of the trustee.
The detailed mechanics:
Trustee-level liability. The 30% tax is levied at the trustee, not the beneficiary. This is a structural shift — previously, discretionary trusts were "look-through" for tax purposes, with the trustee paying tax only on undistributed income at penalty rates. Under the new system, the trustee pays a baseline 30% regardless of distribution.
Non-corporate beneficiaries get credits. When the trustee distributes income, non-corporate beneficiaries (individuals, family members) include their share of trust income in their own tax returns and pay tax at their marginal rates. They receive a non-refundable tax credit for their share of the tax already paid by the trustee. This avoids double taxation but ensures the effective tax on the income cannot fall below 30%.
Corporate beneficiaries do not get credits. This is the most strategically significant element of the reform — the deliberate "anti-bucket-company" rule. If a trust distributes to a corporate beneficiary (a "bucket company") taxed at 25%, the trustee's 30% tax still applies and the company cannot offset it. The classic bucket company strategy of capping family income tax at 25% by streaming surplus income to a company beneficiary is materially weakened.
The exclusions are extensive. The minimum tax does not apply to:
• Complying superannuation funds (including SMSFs)
• Fixed trusts
• Widely-held trusts (including most managed investment trusts)
• Special disability trusts
• Deceased estates
• Charitable trusts
• Primary production income
• Income from testamentary trusts already in existence at the announcement date (12 May 2026) — but note this is a narrower protection than it sounds, because a testamentary trust only comes into existence on death, not when the will is signed (see "The hidden death tax" section below)
• Certain income relating to vulnerable minors
• Non-resident withholding amounts
Rollover relief is available. For three years from 1 July 2027 to 30 June 2030, the government will provide relief from both income tax and CGT consequences for trusts restructuring out of the discretionary trust form. Eligible exits include movement into companies, fixed trusts, or other entities. The Australian Small Business and Family Enterprise Ombudsman will support small businesses through restructure decisions from 1 January 2027, and ASIC will provide specific arrangements to support incorporation.
This is the single most important practical concession in the reform package. It says, in effect: "we know we are changing the rules; we are giving you three years and the tax relief to restructure if you choose."
Who this actually affects
Some context to cut through the political framing: the reform does not affect everyone with a trust equally. The practical impact varies significantly depending on how the trust currently operates.
Group A: Trusts already distributing to non-corporate beneficiaries on top marginal rates.
If your trust distributes primarily to working professionals already paying tax at 37% or 47%, the 30% minimum tax produces little or no change in the total tax paid. The credit system works smoothly. For this group — typically professional services partnerships, dual-income high-earning families, and similar — the reform is largely cosmetic.
Group B: Trusts using bucket company structures.
This is the group most directly targeted by the reform. A trust that has historically streamed surplus income to a corporate beneficiary taxed at 25% (with the company retaining earnings or paying franked dividends in low-income years) now faces the 30% trustee tax with no offsetting credit. The bucket company strategy is not eliminated but is materially weakened. For trading businesses operating through this structure, the planning conversation is urgent.
Group C: Trusts splitting income across lower-tax-bracket family members.
This is the group with the most nuanced impact. A family trust historically distributing income across multiple adult family members on lower marginal rates — adult children at university, a non-working spouse, semi-retired parents — has benefited from the lower blended tax rate. Under the new rules, the 30% floor applies regardless. The annual tax benefit narrows significantly.
Group D: Trusts holding investment assets.
A trust holding shares or property primarily for asset protection, succession or estate planning purposes — with income distributed pragmatically to family members — is affected to the extent of the income generated. For passive investment trusts with modest income relative to capital, the impact may be moderate; for income-heavy investment trusts, it can be material.
Group E: Trusts operating businesses.
For trading businesses operating through a discretionary trust structure, the reform creates a real strategic question: does the trust remain the right operational vehicle, or does the 1 July 2027 to 30 June 2030 rollover window create the right moment to incorporate? This is a decision with consequences far beyond tax.
For each group, the strategy is different. There is no single right answer.
The four scenarios we are modelling for clients
Let's run through four representative scenarios from our client base. The numbers are illustrative and the recommendations directional — actual advice requires modelling your specific position.
Scenario 1: The family investment trust splitting across four adults
A family trust holding a $1.8m diversified investment portfolio. Annual distributable income of $96,000 (dividends, interest, distributions, realised gains). Distributed across two working parents (marginal rates 37% and 32%) and two adult children at university with minimal other income.
Current outcome (illustrative):
• $35,000 to parent A at 37%: tax of approximately $13,000
• $25,000 to parent B at 32%: tax of approximately $8,000
• $18,000 each to two children at 19%: tax of approximately $3,400 each
• Total family tax: approximately $27,800
• Effective rate on trust income: 29%
Under the new rules from 1 July 2028:
• Trustee pays 30% on $96,000 = $28,800
• Beneficiaries declare distributions, receive credits, pay top-up tax at marginal rates where applicable
• Beneficiaries at marginal rates below 30% (the children) effectively pay no additional tax beyond the trustee's payment, but the credit is non-refundable so cannot recover any of the 30% paid by the trustee
• Total family tax: approximately $28,800–$30,000 depending on parent marginal rates and credit interaction
The bite for this family is around $2,000–$3,000 annually. That is real, but modest. The strategic question is whether the trust still serves its broader purposes (asset protection, estate planning, intergenerational structure) sufficient to justify the modest additional tax.
For families in this position, the answer is often yes, retain the trust. The non-tax purposes of a well-structured family trust — protection from creditors, ease of estate transition, flexibility around future family circumstances — are often worth more than the marginal tax difference.
Scenario 2: The bucket company strategy with a trading business
A construction business operating through a family trust, generating $480,000 of taxable profit annually. Historically, $320,000 has been distributed across family members at marginal rates, with the remaining $160,000 streamed to a corporate beneficiary (the family bucket company) at 25%.
Current outcome (illustrative):
• $320,000 distributed across family members, tax of approximately $90,000 at blended rates
• $160,000 to bucket company at 25%: tax of $40,000
• Total: approximately $130,000
Under the new rules from 1 July 2028:
• Trustee pays 30% on $480,000 = $144,000
• Distributions to family members generate credits as before
• Distribution to bucket company generates no credit — the $48,000 of trustee tax on that portion is effectively additional cost
• Total: approximately $144,000–$150,000 with the bucket company offering no further saving on the streamed portion
The bite for this business is around $14,000–$20,000 annually, and the bucket company strategy is materially compromised.
For businesses in this position, the strategic conversation is real. The three-year rollover window may be the right moment to restructure the operating business into a company structure, where the 25% small business company rate applies cleanly and retained earnings can be deployed without the trust friction. The non-tax considerations — asset protection of the underlying assets, succession planning, the position of family member beneficiaries — all matter and require integrated advice.
This is precisely the type of decision the rollover relief was designed to facilitate. Used well, it converts a tax-reform problem into a structural opportunity.
Scenario 3: The professional services trust
A medical specialist practice operating through a discretionary trust, distributing $580,000 across the specialist (top marginal rate) and the spouse (38% marginal rate after own work income).
Current outcome: distributions at marginal rates produce a blended tax of approximately 42%, or roughly $244,000.
Under the new rules: the 30% floor is well below the actual marginal rates of the beneficiaries. The trustee-level tax is fully offset by credits at the beneficiary level. The change is cosmetic — the total tax paid is unchanged.
For trusts in this position, the right action is typically to do nothing. The structure continues to serve its purposes; the reform has no real economic effect; restructuring would create costs without benefits.
Scenario 4: The investment trust holding established property
A family trust holding two investment properties bought in 2012 and 2018, currently valued at $1.6m combined, generating modest rental income after expenses. Distributions to family members at varying marginal rates.
The trust reform impact on the income side is modest given the modest income. The compound effect with CGT reform is where this gets interesting. The new CGT rules apply to gains arising after 1 July 2027 inside trusts as they do for individuals. The new trust minimum tax applies to those gains when realised inside the trust from 1 July 2028.
For trusts holding investment property:
• The decision to hold versus sell becomes more complex
• The decision to restructure or unwind the trust interacts directly with CGT
• The three-year rollover window may permit a tax-efficient exit from the trust structure into individual ownership or a different vehicle
• The interaction with negative gearing changes (where the trust holds geared property) adds another layer
This is the highest-complexity scenario in our client base, and the one where integrated advice produces the most significant value. The right answer rarely emerges from a single conversation.
The three-year rollover window: what's actually on offer
The rollover relief available from 1 July 2027 to 30 June 2030 is more generous than initial coverage suggested. The key features:
Relief from income tax consequences of restructure. Without rollover relief, transferring assets out of a discretionary trust typically triggers CGT events and income tax consequences that make restructure prohibitively expensive. The relief removes those consequences for eligible restructures.
Relief from CGT consequences. Similarly, the transfer of CGT assets (shares, property, business interests) out of the trust into a company or fixed trust is given CGT rollover treatment, preserving the existing cost base in the new structure.
Eligible destination structures. The relief permits movement into:
• Companies (most relevant for trading businesses)
• Fixed trusts (relevant for investment trusts where beneficial ownership can be defined)
• Other entities consistent with the policy intent
Practical support. The Australian Small Business and Family Enterprise Ombudsman is being resourced to support small business decisions from 1 January 2027, and ASIC is preparing specific arrangements for incorporation. The government has, in effect, built infrastructure to support orderly restructure.
What the relief does not do. It does not absolve the costs of restructure — legal fees, accounting work, valuation work, transition costs are real and meaningful. It does not change the fundamental commercial trade-offs of different structures (a company is not a trust; the protections, flexibilities and obligations are different). And it has a hard end date — 30 June 2030 closes the window.
For clients seriously considering restructure, the planning timeline matters. The end-of-window rush is predictable; the smart move is to start the conversation in late 2026 or early 2027 so that any restructure can be executed deliberately rather than at deadline pressure.
The hidden death tax: the part of this reform that affects almost every will in Australia
If you read only one section of this article, read this one.
Buried inside the trust reforms is a consequence that has been almost entirely missed in the mainstream coverage, and it affects something far more personal than a tax structure. It affects what happens to your family when you die.
Most well-advised Australian families have a will that establishes a testamentary discretionary trust — a trust created on death, written into the will, designed to hold and distribute the estate to the surviving spouse, children and grandchildren. It is one of the most widely used and most valuable estate planning structures in the country. It provides asset protection for beneficiaries, it shelters inheritances from a child's divorce or bankruptcy, and it has historically allowed income from the inherited assets to be distributed tax-effectively across the family — including to grandchildren, who could receive income at adult marginal rates rather than penalty rates.
The Budget's 30% minimum trust tax has swept these structures in. And the detail of how is where it becomes deeply personal.
The exemption only protects testamentary trusts already in existence at Budget night. And here is the point almost no one understands: a testamentary trust does not exist when you sign your will. It comes into existence only when you die.
Read that again, because it is the entire issue.
A will you signed five or ten years ago — professionally drafted, sitting in your solicitor's safe, establishing a testamentary trust to protect your family — offers no protection from the new 30% tax if you die after 7:30pm on 12 May 2026. The date you signed the will is legally irrelevant. The trust it creates did not exist on Budget night. It only springs into life at the moment of your death. And if that moment falls after Budget night, your family's testamentary trust is caught by the new rules.
In plain terms: if you have a will containing a testamentary trust, and you die tomorrow, that trust will be taxed at a minimum of 30% on its income from 1 July 2028. The tax-effective distribution to your children and grandchildren that your estate plan was carefully designed to deliver is compressed. The structure still works for asset protection — that part is unaffected, and it remains valuable. But the tax advantage that was a core reason many families established these trusts is materially reduced.
This affects, quite literally, millions of Australian wills currently in force. Almost every family that has done serious estate planning has a testamentary trust in their will. Almost every one of them is now exposed, unless they died before Budget night — which is not a planning strategy anyone would choose.
Some commentators have begun calling this a hidden death tax. Australia has no formal estate or inheritance tax, and technically that remains true — the 30% applies to income earned by the trust after death, not to the assets themselves, and the CGT death rollover still operates. But the practical effect on the wealth you intend to pass to your children is real, and the "death tax" label captures why it matters to families even if it is not technically accurate.
Whether this was a deliberate policy choice or an unintended consequence of casting the trust net widely is a genuine open question — one we expect to be tested through the consultation process, and one that may not survive into the final legislation unchanged. But until the law is settled, every will containing a testamentary trust sits under a question mark.
This is significant enough, and personal enough, that we are publishing a dedicated article on it in the coming days — covering exactly who is affected, what your existing will does and does not protect, the planning options available, why fixed testamentary trusts are usually a poor substitute, and the coordination required between your financial adviser, your accountant and your estate planning lawyer. If you have a will with a testamentary trust — and most of our clients do — it will be essential reading.
Subscribe at wealtheffectgroup.com.au to receive it the moment it is published. If you take one action after reading this article, make it that one.
The framework: should you restructure?
When clients ask us "should we restructure the trust?", these are the questions we work through. They are deliberately framed to cut through the tax-myopia that often dominates the conversation.
1. What is the trust actually for?
Asset protection? Income splitting? Estate planning? Family business operation? Investment holding? Most trusts serve multiple purposes, and the relative weight of each is highly individual. The trust's non-tax purposes need to be clearly identified before any tax-driven restructure decision is made.
2. What is the marginal tax saving (or cost) of the reform for this trust?
For some clients, near zero. For others, materially significant. The actual annual cost needs to be quantified — not estimated — before any restructure cost is justified.
3. What are the alternative structures, and what do they offer?
A company offers different things from a trust: lower headline tax rate (25% small business), no minimum trust tax, retained earnings flexibility — but loses the streaming flexibility, complicates asset protection in some scenarios, and changes the estate planning dynamics. A fixed trust offers a different combination. The right comparison is not "trust under new rules vs trust under old rules" but "trust under new rules vs the best alternative structure."
4. What are the costs of restructure?
Legal restructure costs, accounting work, transition costs, the work involved in re-papering banking, contracts, leases, employee arrangements. These are real and they vary widely depending on the complexity of the existing structure. For trading businesses, $30,000–$80,000 in restructure costs is not unusual.
5. What are the family and succession implications?
A trust is not just a tax vehicle; it is often the spine of family succession planning. Restructuring can have implications for how wealth passes between generations, who has effective control, and how family disputes are managed. These need to be on the table.
6. What does the modelled position look like in 5, 10 and 20 years?
The right comparison runs across decades, not financial years. Restructure costs are upfront and one-time; the tax savings (or losses) compound over the holding period.
7. Is the rollover window the right moment?
The 1 July 2027 to 30 June 2030 window is a genuine concession. Restructuring outside that window (before or after) involves CGT and income tax consequences that may make restructure uneconomic. If restructure is going to happen, the window is when.
If you cannot answer these seven questions confidently for your trust today, you are not in a position to make the restructure decision — and any adviser who tells you otherwise is not doing the work.
The mistakes we are seeing
The patterns of mistake emerging in real time:
Mistake 1: Reactive trust collapse.
We have already had several enquiries from prospects whose accountants have suggested simply winding up the family trust to "get ahead of the change." In many cases this would crystallise CGT, eliminate asset protection, lose estate planning flexibility, and produce a worse outcome than retaining the trust. Trust dissolution is rarely the right answer.
Mistake 2: Premature restructure outside the rollover window.
The rollover relief begins 1 July 2027. Restructuring before that date forfeits the relief and accepts CGT consequences that the policy has explicitly offered to waive. There are limited circumstances where pre-window restructure makes sense; they are exceptions, not the rule.
Mistake 3: Defaulting to a company without proper analysis.
A small business company structure is not automatically the right destination. The 25% tax rate is attractive, but companies lack the streaming flexibility, complicate certain succession dynamics, and impose different governance obligations. The right structure is specific to the situation.
Mistake 4: Treating this as a tax-only decision.
The trust reform is presented as a tax reform, but the right response involves legal, commercial, succession and family considerations that go well beyond tax. Tax-only advice on this question is incomplete advice.
Mistake 5: Waiting too long.
The 30 June 2030 window-close is a hard deadline. Working backwards from there, complex restructures often need 12+ months of preparation, valuation, legal work, and execution. Starting in 2030 is starting too late.
What we are doing for clients
Our Federal Budget Strategy Reviews for clients with discretionary trusts include:
• Detailed quantification of the annual tax impact under the new rules
• Comparative modelling of trust-retained vs company-restructured vs fixed-trust-restructured scenarios over 10–20 year horizons
• Integration with CGT, negative gearing, superannuation and broader wealth strategy
• Coordination with the client's accountant and lawyer where restructure is contemplated
• Written advice with specific recommendations and a documented decision rationale
For complex trust structures with multiple assets, beneficiaries and purposes, this work typically runs across several meetings and several months. Done well, the result is clarity about whether to retain, restructure or unwind — and a clear plan for execution within the rollover window.
This is the work we do for our clients. We strongly encourage every reader with a discretionary trust to seek equivalent depth of analysis before making any structural decision, whether that work comes from us or from another qualified adviser.
In closing
The trust reforms are significant, but they are not the death of the discretionary trust as a wealth structure. Most existing trusts will continue to serve their purposes — some with modest additional tax, others essentially unchanged.
For a meaningful subset of trusts — particularly bucket company structures and trading businesses operating through trust form — the reform creates a real strategic question, and the three-year rollover window creates the right moment to answer it.
For families with a discretionary trust at the centre of their wealth structure, the right approach is the same as the right approach to every other element of this Budget: pause, model the numbers, get integrated advice, and make deliberate decisions within the window.
There is no prize for being first to react. There is a meaningful prize for being right.
Coming next in this series
Upcoming articles:
• Why Superannuation Just Became the Most Important Asset on Your Balance Sheet
• Selling a Business in the Next 10 Years: How the Budget Changed the Maths
• The Pre-Retiree's Playbook: Navigating Budget 2026 in Your 50s and 60s
• Aged Care, Estate Planning and the Sandwich Generation
wealtheffectgroup.com.au | SMSF trustees: wesmsf.com.au | $5m+ investable assets: weprivate.com.au
Andre Dirckze is the Principal Adviser of Wealth Effect Group, a national Australian financial advice business with offices in Melbourne and the Gold Coast.
Disclaimer
This article contains general information only and does not take into account your personal objectives, financial situation or needs. It is not personal financial, tax, legal or investment advice. The numerical scenarios are illustrative only and rely on assumptions that may not apply to your circumstances. The information is based on the 2026–27 Federal Budget announcements; legislation has not yet been enacted, and the final form of the law may differ. Before acting on any of the strategies referenced — particularly any decision to retain, restructure or unwind a trust — you should seek personal advice from a licensed financial adviser, registered tax agent and qualified legal practitioner who can consider your full circumstances. Wealth Effect Group Pty Ltd and its related entities accept no liability for any loss or damage arising from reliance on this article.
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