The trust tax that lands in 2028 is bigger than the headlines suggest, and the clock is already running.

Buried in the 2026-27 Federal Budget is a measure that will do more to reshape how ordinary Australian businesses are structured than anything in a decade. From 1 July 2028, the government proposes to hit the income of discretionary trusts with a minimum tax of 30 per cent, paid by the trustee before a dollar reaches a beneficiary. It has been reported as a crackdown on the wealthy. That framing misses the point, and misses most of the people it will actually touch.

Full disclosure before I go further. I am one of the business owners this affects. Some of what I have built runs through a trust, so I have read this measure the same way many of you will have, as a participant rather than a commentator. That is precisely why I want to set out plainly what is proposed, who is in the firing line, and why the sensible response is to understand your position now rather than in the last months of the decade.

What Treasury is actually proposing

Strip away the noise and the mechanism is straightforward. The trustee of a discretionary trust would pay 30 per cent tax on the trust's taxable income as a standalone liability. Beneficiaries still declare their share and receive a credit so the same dollar is not taxed twice. There are carve-outs, and they matter: primary production income, testamentary trusts already on foot, complying super funds and SMSFs, fixed trusts and widely held trusts all sit outside the net.

But for the standard family or trading discretionary trust, the workhorse structure of Australian small business, this is a structural shift. The long-standing ability to stream income to lower-taxed family members loses its edge, and the "bucket company" play, where surplus profit is parked in a corporate beneficiary at the company rate, is squarely in the crosshairs. Corporate beneficiaries would receive no credit at all under the proposal.

Nor does it end with trusts. From 1 July 2027, the 50 per cent CGT discount is slated to be replaced with cost base indexation plus a 30 per cent floor on real gains, and negative gearing on established residential property is set to be tightened. Each warrants its own analysis. The trust change is the one forcing a rethink of structure itself.

A necessary caveat: this remains a proposal, subject to consultation and legislation, and the detail can move. Your awareness of it should not.

This is not a problem for the top end of town

The numbers make the point. Treasury's own material indicates roughly 350,000 small businesses operate through discretionary trusts, and about 140,000 of them are expected to either pay more tax or restructure. Around 810,000 adults received a trust distribution in a recent year. These are not, for the most part, the ultra-wealthy. They are trades businesses, medical and dental practices, family manufacturers and consultants, the operators who were advised years ago, correctly at the time, that a trust was the prudent way to hold a growing enterprise. The rules are now shifting beneath structures that were built in good faith.

If you run a profitable business through a trust, the honest starting assumption is that you are in the affected cohort.

The relief that looks generous, and the trap the states set

Here is the part that deserves more attention than it is getting. The government has proposed a three-year restructuring window, running from 1 July 2027 to 30 June 2030, with rollover relief that defers income tax and capital gains tax when business assets move from a discretionary trust into a company or fixed trust. On its face, an orderly transition. Three years sounds ample.

It is not as clean as it looks. That rollover relief is a Commonwealth measure, and it binds only Commonwealth taxes. Stamp duty is levied by the states, each with its own rules on trust-to-company transfers, and the Commonwealth cannot wave them through. A restructure that is perfectly neutral for income tax can still trigger a substantial duty bill, particularly where the trust holds land or significant assets. Tax practitioners have taken to calling it a postcode lottery, because the identical restructure can cost very different amounts depending on which side of a state border a business happens to sit.

This is the ground on which the Australian Small Business and Family Enterprise Ombudsman has been pressing. The Ombudsman's office has said it will help small businesses weigh their options and is pushing for clearer, fairer treatment through the transition. The underlying concern is a fair one and easy to underestimate: once you add valuations, financier consents, professional advice and state duty, the true cost and complexity of restructuring is far greater than the three-year window makes it look.

The window will close faster than it appears

None of this argues for panic, and certainly not for acting on a measure that is not yet law. It argues for getting ahead of it. The businesses that emerge from this in good shape will be those that mapped their position early and moved with a plan, not those scrambling as the window closes in 2030.

That means knowing what your trust holds, what a restructure would genuinely cost you including duty, what it would do to your small business CGT concessions on an eventual sale, and whether wearing the 30 per cent is in fact the better answer for you. For some it will be. For others it will not. The only way to know is to run your own numbers.

If you hold a trust and you are unsure where you stand, this is a conversation worth having this year. It is what we do at Wealth Effect Group, and it is considerably cheaper to plan for now than to react to later. If it sounds like your situation, get in touch, and we will map it out with you well before the clock runs down.

This article is general information only and does not take your personal circumstances into account. The measures described are proposed and subject to legislation, so the final rules may change. Please seek advice tailored to your situation before making any decisions. Wealth Effect Group is a Corporate Authorised Representative of Boston Reed Pty Ltd (ABN 89 091 004 885, AFSL 225738).