30% Minimum Tax on Discretionary Trusts from 1 July 2028: Budget 2026 Explained
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Primary tax-year context: Current Australian tax settings
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Budget 2026 introduced a 30% minimum tax on discretionary trusts starting 1 July 2028. The reform aims to bring the tax outcome of discretionary trust income closer to that paid by wage and salary earners on similar incomes.
How the minimum tax works
- The trustee pays the minimum tax as a separate liability on the trust’s taxable income.
- Beneficiaries continue to declare trust income in their own returns and pay tax at their marginal rates.
- Non-corporate beneficiaries (individuals, etc.) receive non-refundable tax credits for tax paid by the trustee. This avoids double taxation while ensuring the overall tax paid is at least 30%.
- Corporate beneficiaries do NOT receive non-refundable credits — anti-bucket-company rule, preventing trusts from cycling income through 25%-tax companies to avoid the minimum tax.
- Trustees of trusts already distributing to non-corporate beneficiaries taxed at 30% or higher will see no increase in total tax paid.
If the trust receives franked dividends, trustees must use franking credits to pay the minimum tax (cannot accumulate refundable franking credits to avoid it).
Who is excluded
The minimum tax does NOT apply to:
- Fixed trusts (defined entitlements)
- Widely-held trusts (most managed investment trusts)
- Complying superannuation funds (including SMSFs)
- Special disability trusts
- Deceased estates
- Charitable trusts
Plus, the following types of income within an in-scope discretionary trust are excluded:
- Primary production income (e.g. agriculture)
- Certain income relating to vulnerable minors
- Amounts to which non-resident withholding tax applies
- Income from testamentary trusts existing at announcement (12 May 2026)
Impact statistics
- ~810,000 adults (5% of taxfilers) received discretionary trust distributions in 2022-23.
- ~95% of individual taxfilers unaffected.
- ~350,000 active small businesses (15% of all small biz) operate through a discretionary trust.
- ~40% of these (140,000) expected to pay additional tax or restructure annually.
- Australia has ~1 million trusts (40 per 1,000 people), well above UK (~2 per 1,000) and US (~9 per 1,000).
- ~80,000 companies receive trust distributions; 83% of those have no business activity (i.e. they are bucket companies for tax purposes only).
Rollover relief — 3-year window from 1 July 2027
To support small businesses and others restructuring out of discretionary trusts, an expanded rollover relief is available for 3 years from 1 July 2027 to 30 June 2030:
- Relief from income tax + capital gains tax consequences for restructure
- Available for movement into companies, fixed trusts, or other entities
- Australian Small Business and Family Enterprise Ombudsman (ASBFEO) supports small business decisions from 1 January 2027
- ASIC will put in place specific arrangements to support incorporation
Small business: trust vs company comparison
The Treasury fact sheet’s Kurt vs Loretta cameo (2028-29 numbers, both running $300,000 small businesses):
| Structure | Approach | Total tax (2028-29) |
|---|---|---|
| Loretta — Company | $100k salary to herself + $200k retained in company at 25% small biz rate | $72,002 |
| Kurt — Discretionary trust (pre-reform) | $100k salary + $200k split across 4 family members on no other income | $42,010 |
| Kurt — Discretionary trust (post-reform) | Same distribution + 30% minimum tax on the $200k income not paid as wages | $86,002 |
The pattern: under the minimum tax, company structures become equally or more attractive than discretionary trusts for retaining business income.
Bucket companies become unviable
Around 80,000 companies received distributions from a discretionary trust in 2022-23; 83% had no other business activity, suggesting they operate primarily for tax purposes (so-called “bucket companies” used to defer or reduce tax via the 30% corporate rate).
Under the new rules, the lack of non-refundable credits for corporate beneficiaries means the trust will pay 30% minimum AND the corporate recipient will pay further tax when distributing to its individual shareholders. Bucket-company strategies become economically counter-productive.
EOFY planning implications
2026-27 EOFY (30 June 2027)
Last full year of unchanged discretionary trust planning. Standard strategies still apply:
- Distribute to lower-marginal-rate adult beneficiaries
- Family Trust Election timing
- Streaming franked dividends and capital gains
1 July 2027 onward
Begin restructure consultation. The 3-year rollover window opens. Key questions:
- Is the trust primarily holding investment assets or running a business?
- For business trusts, is a company structure more efficient given the 25% small biz rate and dividend imputation?
- For investment trusts, does a fixed trust provide enough flexibility?
1 July 2028 (minimum tax commences)
First income year subject to the minimum tax. Trustees of in-scope trusts will calculate, report, and pay the minimum tax via the trust’s 2028-29 return (lodged from July 2029).
What is NOT changing
- Trustee discretion to determine beneficiary entitlements each year — retained
- Beneficiaries continuing to include trust income in their own tax returns — retained
- Trust tax law (Division 6 and related) framework — retained
- CGT rollover from discretionary trust → fixed trust → company — enabled/expanded for the 3-year window
- Small business CGT concessions — retained unchanged
- Existing testamentary trusts (those in place 12 May 2026) — excluded
Calculators
- Income Tax Calculator — compare 25% small biz company rate vs 30% min trust tax
- Company Tax Calculator — model retained earnings under 25% rate
- Capital Gains Tax Calculator — CGT impact of trust restructure (rollover relief applies in window)
Sources
- Treasury Budget Paper No. 1, Statement 4: Tax reform for workers, businesses and future generations (12 May 2026)
- Treasury Budget Paper No. 2, Tax Reform – introducing a minimum tax on discretionary trusts (p22)
- Treasury fact sheet: Minimum Tax on Discretionary Trusts (12 May 2026)