Published 2 October 2026 · Stewart Private Accounting
The May 2026 Federal Budget announced a 30% minimum tax on certain discretionary trust income from 1 July 2028. Treasury subsequently released a July consultation paper and September exposure draft legislation. For a family business, the issue is how the proposed rules would affect distributions, cash flow and the reasons for using the trust.
Status at 2 October 2026: this article explains the exposure-draft proposal, not a minimum trust tax already operating. The Treasury draft legislation and explanatory materials were released on 3 September, with consultation closing on 18 September 2026. Final provisions and administrative arrangements may change.
Would every family trust pay 30%?
The draft targets defined minimum-tax trusts and relevant net income, with exclusions. A structure being called a “family trust” does not settle whether it is caught. Review the deed, beneficiary rights, income sources and any exclusions rather than relying on its trading name or a general description.
Under the proposed core arrangements, the trustee would pay the minimum tax. Non-corporate beneficiaries would generally receive a non-refundable offset for the trustee tax attributable to their share. The tax is a floor, so it does not cap a high-income beneficiary’s total tax at 30%. Corporate beneficiaries have different treatment. These mechanics are explained in the draft minimum-tax explanatory materials.
Why does the proposal matter for cash flow?
A trust that currently allocates income to adult beneficiaries on lower marginal rates may lose some of that tax benefit. The trustee would also need cash available to meet its proposed liability, rather than assuming every dollar can be distributed or reinvested.
As a simplified illustration, $100,000 of income wholly subject to a 30% minimum implies a $30,000 minimum tax amount. That is not automatically an additional $30,000 on top of all existing tax. Existing trustee tax, beneficiary offsets, excluded income and credits affect the outcome. Use a forecast based on the trust’s actual income and beneficiaries, rather than multiplying its gross sales by 30%.
Which trusts and income would be excluded?
The September proposal provides exclusions for relevant fixed trusts, complying superannuation entities, special disability trusts and deceased estates. It also provides for excluded income, including qualifying primary production income, certain income relating to vulnerable minors and genuine testamentary trust income. Charitable and other exempt beneficiaries have specific rules.
These exclusions have conditions. A trust earning farming income and investment income should not assume every dollar is exempt. Nor does a unit trust automatically qualify as a fixed trust merely because it has units. The proposed fixed-trust definition looks at the substance of beneficiary entitlements and material discretionary elements.
What is the new fixed-distribution election?
The September draft adds an alternative to restructuring for discretionary trusts in existence at 1 July 2028. A trustee could elect to make fixed distributions to pre-nominated beneficiaries and be excluded from the minimum tax regime. The Treasury exposure-draft factsheet explains the option.
This would exchange distribution flexibility for greater certainty. Changing nominated beneficiaries is restricted, and inconsistent distributions can automatically revoke the election. Treasury’s draft outlines a highest-marginal-rate consequence, including Medicare levy, in the revocation year, followed by minimum-tax treatment in later years. It is therefore not a casual annual switch.
Before considering the election, test what would happen if family members’ incomes, ownership plans or relationships change. Review the draft election explanatory materials alongside the deed.
Would restructuring be tax-free?
Expanded rollover relief is proposed for three years from 1 July 2027 to help taxpayers move out of discretionary trusts, including into companies or fixed trusts. The relief has conditions and is designed around a full restructure, with targeted exceptions. It is not permission to move selected assets to family members without consequences.
Income tax rollover relief does not automatically remove state transfer duty, lender consent, legal costs or commercial obligations. For a Perth business or property owner, obtain a separate Western Australian duty assessment and legal review before transferring assets. Compare staying in the trust, an eligible election and a restructure using the same income and cash-flow assumptions.
How does this interact with CGT and company beneficiaries?
The CGT reforms from 1 July 2027 are a separate measure with an earlier start date. A trust restructure can raise both sets of questions. Treasury has also indicated that legislation concerning unpaid present entitlements and Division 7A will be progressed separately; distributing income to a company should not be treated as an automatic solution. See the September Treasury announcement.
What should trustees prepare now?
- The current trust deed and every amendment.
- Recent tax returns, accounts and distribution resolutions.
- Asset ownership, cost-base and loan records.
- Beneficiary balances, company entitlements and cash payments.
- A forecast of business, investment and excluded income.
- The family’s succession, asset-protection and funding objectives.
Continue meeting current distribution and reporting obligations while planning for the proposal. Our trust tax return guide covers existing records and deadlines. Discuss a trust planning review with Stewart Private Accounting so the options can be assessed against your circumstances and the legislation available at that time.
General information checked at 2 October 2026. Future law, eligibility and your circumstances can change the result. Obtain tax and legal advice before selling assets, amending a deed or restructuring.
