Proposed 30% Minimum Tax on Discretionary Trusts: What Families and Businesses Should Know
Status at 5 September 2026: Proposal only — not law. Treasury released exposure draft legislation on 3 September 2026; consultation on the draft closes 18 September 2026. The design could still change before a bill reaches Parliament. Proposed start: Minimum tax from 1 July 2028, with expanded restructuring rollover relief proposed for three years from 1 July 2027. Planning message: Review your structure, but do not restructure solely on an announcement.
Discretionary trusts remain useful for asset protection, succession and family businesses; the Budget did not ban them. It proposed a significant tax floor. If legislated, trustees of in-scope trusts would pay at least 30% on trust taxable income, with credits intended to prevent double taxation. For now, the right response is preparation — not panic.
How the proposed minimum tax would work
The trustee would continue determining beneficiary entitlements under the deed and tax law, and beneficiaries would still include their share in their returns. The trustee would pay 30% on taxable income unless a higher rate applied, while individual and other non-corporate beneficiaries received non-refundable credits.
If a beneficiary’s tax on the distribution is more than the credit, they would pay the difference. If their tax is less, the unused credit would not produce a cash refund. That is how the proposal aims to create a genuine 30% floor.
The exposure draft sets out how the tax would be collected and credited, but it is a draft. Trustees should not assume the final system will operate exactly like company imputation.
What about bucket companies and franking credits?
The proposal specifically addresses corporate beneficiaries, often called bucket companies. They would not receive a credit for trustee tax but would still be assessed on their trust entitlement, preventing trustee tax being converted into refundable franking credits or avoided through a company.
Trustees receiving franked dividends would also be expected to use franking credits towards the minimum-tax liability. The September 2026 exposure draft proposes that franking credits left over after paying the minimum tax can be refunded, which answers one of the main concerns raised in the July consultation — but watch the final wording.
Which trusts and income may be excluded?
This is not a proposed 30% tax on every trust.
Proposed exclusions include fixed and widely held trusts, complying super funds, special disability trusts, deceased estates, charitable trusts and genuine discretionary testamentary trusts. Some primary production income, income relating to vulnerable minors and amounts subject to non-resident withholding may also be excluded. The Government has already broadened the testamentary-trust exclusion since the Budget, and the September exposure draft widens the “fixed trust” definition so that many unit trusts fall outside the regime — two reasons to wait for the final Bill before acting.
The boundaries will be crucial. A trust’s name is not enough to establish treatment; its deed, control, beneficiary rights, activities and sources of income will need to be reviewed against the enacted rules if Parliament passes them.
A new “fixed distribution” election
The September 2026 exposure draft adds an option the Budget did not mention: an existing discretionary trust could elect to nominate specific beneficiaries and fix their entitlements to income and capital for tax purposes, taking the trust outside the minimum tax without a formal restructure. The catch is that the nominations would be largely locked in afterwards, so it trades flexibility for the lower rate. This is only a draft, but it is the option many family trusts will want modelled first.
Proposed rollover relief for restructuring
The Government proposes expanded income-tax rollover relief for small businesses and others wishing to move from a discretionary trust into a company or fixed trust. The proposed window runs for three years from 1 July 2027.
That does not make every restructure free. State duty, GST, finance, contracts, asset protection and legal costs may remain. Any change should stand up commercially, not merely chase one rate.
A practical example
A hypothetical Green Family Trust has $120,000 of taxable income and proposes to distribute all of it to an adult beneficiary with little other income.
Assume the beneficiary’s ordinary tax on that trust income would otherwise be $24,000. Under the proposed model, the trustee pays $36,000, being 30% of $120,000. The beneficiary includes the distribution and receives a $36,000 non-refundable credit.
The credit reduces the beneficiary’s $24,000 liability to nil, but the unused $12,000 is not refunded, leaving overall tax of $36,000. If their tax were $45,000, they would pay the remaining $9,000.
This is simplified. Trust income, franked dividends, capital gains, beneficiary type and exclusions can change the result.
What should trustees do now?
Use a staged review:
Identify discretionary trusts across the group.
Map distributions, beneficiary profiles, bucket companies and unpaid entitlements.
Separate potentially excluded income from likely in-scope income.
Compare the trust with company or fixed-trust alternatives.
Quantify tax, duty, finance, legal and asset-protection effects.
Revisit the plan as the exposure draft becomes a bill and then law.
Existing distribution rules, section 100A, Division 7A and trustee deadlines still matter.
Frequently asked questions
Is the discretionary trust minimum tax already law?
No. At 5 September 2026 it was a Government proposal at exposure-draft stage, with consultation open until 18 September 2026. Articles stating that all family trusts “are now taxed at 30%” are premature.
Will a beneficiary pay another 30% on top?
Not under the announced non-corporate credit design. The beneficiary would generally receive a non-refundable credit for trustee tax, then pay any additional liability. The credit cannot generate a refund if it exceeds their tax.
Should I close my family trust before 1 July 2028?
Not without a full review. Your trust may be excluded, may distribute mainly to beneficiaries already taxed at 30% or more, or may remain valuable for non-tax reasons. Restructuring can trigger costs and consequences outside income tax.
Review your trust strategy with Regans Accountants
Regans Accountants can model the possible 30% floor across your structure and coordinate with your solicitor as legislation develops, so decisions follow the law rather than headlines.
General information only, current at 5 September 2026. The measure described was not law at 5 September 2026; final legislation, exclusions, credits and rollover conditions may differ from the exposure draft. Speak with us about your own circumstances.
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