Discretionary Trust Minimum Tax Bill: What It Does and Who Pays

General information only. This is not tax or financial advice. Consult a registered tax agent for advice specific to your situation.

The minimum tax on discretionary trusts is still a bill. At 9 November 2026 the ATO’s measure page says it “is not yet law”. The Treasury Laws Amendment (Tax Reform No. 3) Bill 2026 and the Income Tax Rates Amendment (Minimum Tax on Discretionary Trusts) Bill 2026 were introduced on 14 October 2026. Parliament’s records show the first passing the House on 29 October, with a Senate committee due to report on 13 November. The Senate can still change or reject them.

The short version. If the bills pass, the trustee of a trust in scope pays the 30 per cent minimum tax on its net income from 1 July 2028. Individual beneficiaries still declare their share and get a credit for that tax, but the credit is not refundable. An adult on a low income can end up paying that rate on money that is taxed far less today, and the difference is not returned at tax time.

This article is about the mechanics in the bills. The Budget-night version is in our Budget explainer, and capital gains inside a family trust are in CGT reform for family trusts. The second is enacted law and starts a year earlier.

How this was checked. Status comes from the ATO’s page and Parliament’s bill page. The mechanics come from the bill as introduced and its explanatory memorandum, read on 9 November 2026. The Senate has not finished with the bills, so check the final text before relying on any detail.

How the tax would work

In the Treasurer’s words, “trustees will pay the 30 per cent minimum tax on the taxable income of discretionary trusts” from 1 July 2028, and “Beneficiaries other than corporate beneficiaries will receive non‑refundable offsets for the tax payable by the trustee.”

Two things follow:

• The trustee has a new bill to pay. It falls due whether or not the income is distributed to someone on a high rate.
• Beneficiaries are still taxed on their share. Their marginal rate still applies. The offset then reduces their income tax, and it stops at nil.

The explanatory memorandum sets the offset at the same rate, applied to the beneficiary’s share of the minimum tax income, and says trustees must use franking credits against the minimum tax. A franking credit the trustee uses is not available to beneficiaries, who get the offset instead.

Worked example: the low-income adult

The common assumption is that a minimum tax with a credit leaves everyone roughly where they were, because the credit “gets you back” whatever you overpaid. It does not, because the credit is non-refundable.

Take an adult with no other income who is made entitled to a modest share of ordinary trust income in 2028-29, small enough that their whole income sits below the bracket where the marginal rate reaches the minimum rate. The Medicare levy is left out.

• Without the minimum tax: the adult pays income tax at the lower marginal rates, reduced by the low income tax offset. A small enough share carries no income tax at all.
• With the minimum tax: the trustee pays the minimum tax on the whole share. The adult’s offset wipes out their own income tax, and what is left of it is not refunded, so the whole share has borne the minimum tax.

That is well above what the same income bears today. The result depends on how the beneficiary’s own income tax compares with the offset:

In the last row the offset is fully used, so total tax does not change. The trustee has paid part of it earlier and the beneficiary pays the rest, if any, with their return. The Treasurer’s speech makes the same point from the other side, saying the rate lines up with the marginal rate paid by workers on middle incomes.

So the tax mainly removes the benefit of distributing to adults whose income sits below that bracket. The minimum tax is charged whoever receives the income, so moving a share to an adult who can use the whole offset reduces what is lost.

Companies get no offset

A company beneficiary gets no credit for the trustee’s tax. The explanatory memorandum gives the reason: the effect of the tax should not be negated by distributing through a company. That removes much of the usual bucket company result for income in scope. It also says the Government may add further anti-streaming rules for corporate distributions if evidence of avoidance or abuse arises.

What is left out

The speech lists these exclusions:

• Trust types: fixed trusts, charitable trusts, special disability trusts and superannuation funds.
• Income: primary production income and certain income relating to vulnerable minors.
• After a death: deceased estates, and discretionary testamentary trusts “established for genuine testamentary purposes”.
• Distributions: all distributions to registered charities and deductible gift recipients, and distributions to other income tax exempt entities such as sporting clubs, up to a reasonable cap.

The testamentary carve-out has limits. Under the explanatory memorandum, income from unrelated property put into the trust after Budget night on 12 May 2026 is caught. A testamentary trust established on or after 1 July 2028 is only excluded if its beneficiaries are individuals, exempt entities or a special disability trust.

“Fixed trust” is where most of the argument sits. The bill keeps the existing test and adds a second one: a trust is also fixed if no material discretionary elements are capable of significantly affecting beneficiaries’ entitlements or rights to income or capital. The Minister can set matters that decide or inform that test by legislative instrument. A family unit trust may not pass simply because it has units, so have the deed read against the final wording.

What a trustee can do about it

The bills offer two optional routes out:

• Rollover relief for three years from 1 July 2027, for moving assets out of a discretionary trust into something like a company or fixed trust.
• An election for trusts existing at 1 July 2028, made in the 2028-29 income year. The minimum tax does not apply while the trustee keeps distributing to the beneficiaries nominated up front, in the nominated shares.

The speech also points to simpler steps, such as different distribution decisions or paying a wage to a beneficiary who works in the business. Run those through the business structure comparison once the Senate has finished, because a rate or exclusion could still move.

What to do now

Nothing here needs a decision before the Senate committee reports. The useful work this year is finding out which of your beneficiaries sit below the bracket where the marginal rate reaches the minimum rate, what share of income goes to them, and whether a company receives any of it. That tells you how much the bills would cost you, and the trust distribution calculator gives you today’s side of the comparison.