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The 30% minimum tax on discretionary trusts
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Overview
A family trust might hold the business you have built, investments for retirement or assets you intend to pass to your children. A change to how that trust is taxed deserves a careful look at what it means for those plans. The proposed 30% minimum tax could change the value of existing distribution strategies. At Bon Conseil, our starting point is to understand the additional tax your family could actually pay, then weigh it against the cost and consequences of changing your structure.
Key dates to know
1 July 2027: Proposed restructuring rollover relief opens.
1 July 2028: The proposed 30% minimum tax begins.
2028–29 income year: Eligible trusts can make an excluded election trust (EET) election under the proposal.
30 June 2030: Proposed restructuring rollover relief closes.
These dates remain subject to the legislation being passed.
Where the proposal stands
The Government introduced legislation on 14 October 2026, with the minimum tax proposed to apply from 1 July 2028. The measures remain before Parliament and are not yet law. Some administration and collection rules also remain to be developed. This article reflects the position as at 11 November 2026. The Treasurer’s announcement and The Tax Institute’s November submission summary explain the current position.
There is useful planning to do now. Any decision to transfer assets or commit to a long-term election should account for the final rules.
How the proposed minimum tax would work
A discretionary trust generally allows its trustee to decide which eligible beneficiaries receive income and in what proportions. Under the usual current arrangements, beneficiaries are taxed on their allocated share, subject to existing trust tax rules.
Under the proposal, the trustee would pay a minimum 30% tax on the trust’s taxable income covered by the rules. Individual beneficiaries would still declare their share in their own returns and receive a corresponding tax credit, called an offset.
That offset would be non-refundable. It could reduce their income tax, but any excess would not be paid back. A beneficiary with a higher tax liability could still have more to pay. These mechanics are outlined in the Government’s trust tax explainer.
For a simplified illustration, suppose an individual’s share of income covered by the minimum tax is $10,000, producing a $3,000 offset:
Calculation | Scenario A | Scenario B |
Assumed income tax for the year before this offset | $2,000 | $5,000 |
Minimum tax offset available | $3,000 | $3,000 |
Remaining income tax after this offset | $0 | $2,000 |
Unused offset with no refund | $1,000 | $0 |
*These are hypothetical income tax amounts, not tax calculations for particular income levels. The illustration excludes Medicare levy, other offsets and special rules.
The practical lesson is to calculate each beneficiary’s full annual tax position. Simply checking whether someone is in the 30% marginal tax bracket does not establish whether they could use the entire offset.
Which trusts would be affected
Many discretionary trusts used by families, business owners and investors would need review. However, the proposal includes exclusions for certain trust types and income, including fixed trusts, complying superannuation funds, special disability trusts and deceased estates. Primary production income and qualifying testamentary trust income also receive specific treatment, subject to conditions. See the Government’s outline of the exclusions.
The deed, beneficiaries and sources of income matter. The name “family trust”, “unit trust” or “testamentary trust” alone is not enough to establish the outcome.
Where existing strategies need a closer look
Distributions to family members with lower incomes
A distribution to a spouse working part-time or an adult child studying may currently produce a lower family tax bill. Under the proposal, an unused offset could reduce that benefit.
Our approach is to model several years. Parental leave, retirement or a career change can alter who receives income and how much tax they pay. An arrangement that looks suitable today may produce a different result when those circumstances change.
Distributions to bucket companies
Corporate beneficiaries would not receive the minimum tax offset, while remaining taxable on their trust income. That creates the potential for tax at both trustee and company level. Treasury’s explanatory materials set out this treatment, which remains a concern in the introduced Bill.
A bucket company strategy therefore needs fresh modelling. Review the tax across the whole group, including what happens when money eventually reaches individual shareholders.
A company acting as trustee is a different role from a company receiving trust income. Having a corporate trustee does not, by itself, make the trust a company for tax purposes.
Cash needed to pay the trustee’s tax
The proposal puts a tax liability with the trustee. Our practical concern is how that liability would be funded if cash has already been distributed, reinvested in the business or used to repay debt.
Build a tax reserve into cash-flow forecasts and revisit it as the payment and collection rules become clearer. Taxable income and available cash can be very different figures.
