Discretionary trusts: 30% minimum tax from 1 July 2028

2026 Federal Budget Proposal

Why it matters: The measure is designed to improve fairness in the tax system and help fund new tax cuts for workers. It reduces the benefit of income splitting through discretionary trusts and limits some corporate beneficiary strategies.

• From 1 July 2028, discretionary trusts will pay a minimum 30% tax at the trustee level

How it works (mechanics)

• Trustees will pay a minimum 30% tax on the taxable income of in-scope discretionary trusts from 1 July 2028.
• Beneficiaries (excluding corporate beneficiaries) receive a non-refundable tax credit for tax paid by the trustee on their share.
• If a beneficiary’s marginal rate exceeds 30%, they pay top-up tax; if it is below 30%, excess credits are not refundable (credits may be wasted).
• Corporate beneficiaries do not receive the credit, which may reduce the effectiveness of bucket company arrangements.

Key impacts to watch

• Reduces effectiveness of income splitting to low-income individuals.
• Reduces effectiveness of using corporate beneficiaries.
• In some cases, this may result in double taxation outcomes.

No grandfathering

Applies to all existing discretionary trust structures from 1 July 2028.

Exclusions (outside scope)

• Fixed and widely held trusts (including fixed testamentary trusts)
• Complying superannuation funds
• Special disability trusts
• Deceased estates
• Charitable trusts

Excluded income (even where a discretionary trust is in scope)

• Primary production income
• Income related to vulnerable minors
• Amounts subject to non-resident withholding tax
• Income from assets of discretionary testamentary trusts that existed at the time of the announcement

Expanded rollover relief (restructuring support)

• Expanded rollover relief will be available for three years from 1 July 2027.
• Designed to help small businesses and others restructure out of discretionary trusts.
• Facilitates transitions into other entity types, such as companies or fixed trusts.

Budget impact: The measure is expected to increase government receipts by $4.5 billion over five years from 2025–26. The ATO will receive $660 million over the same period to support implementation, with funding from 2027–28 held in the Contingency Reserve.

Practical takeaway

• Trusts remain useful for asset protection, but less effective for tax planning purposes
• Many groups may consider restructuring