Discretionary trusts minimum 30% tax (Federal Budget 2026)

Alright, let’s keep this simple — because the official language on this one is a bit of a maze.

From 1 July 2028, discretionary trusts are getting a new rule: A minimum 30% tax will apply to trust income when it’s distributed to beneficiaries.

But here’s the key thing most people need to understand: The tax is paid by the trustee, not the individual receiving the money.

So instead of income flowing straight out to people and being taxed in their hands as usual, the trust now pays tax first — and then beneficiaries receive a non-refundable tax credit for what’s already been paid.

What this really means in plain English

Let me translate this into normal language.

This change effectively puts a tax floor under discretionary trusts.

At the moment, trusts are popular because they can:

Distribute income flexibly
Split income across family members
And help manage tax outcomes

That flexibility is what people have relied on for decades.

This reform starts to take some of that away.

Because once you introduce a minimum 30% tax at the trust level, a lot of that fine-tuning stops working the way it used to.

And for many families and business owners, that means trusts may no longer be the “best default structure” they once were.

Who gets hit hardest?

Let’s break it down simply.

If you’re on a higher tax rate (30% or more)

You’re broadly in the same ballpark as before. The credit system means you’re not necessarily worse off overall.

If you’re on a lower tax rate (under about $45,000 income)

This is where the pain shows up.

Because the tax paid by the trust is not refundable, even if your personal tax bill would normally be lower, you don’t get the difference back. So in effect money gets pushed up to a 30% minimum tax rate, regardless of who receives it. That’s deliberate . It’s designed to reduce income splitting to lower-tax family members.

Corporate beneficiaries (bucket companies) are no longer tax effective

Now let’s talk about something a lot of people already use quietly: company beneficiaries inside trust structures. Under the new system, distributions from a trust to a company don’t get the same credit treatment. This means the Trust pays tax at 30% and then the bucket company pays tax at 25% to 30%.

So, if you are currently using a Trust to distribute to a bucket company, you'll need a solution. For many business and professional practice owners this will simply mean using a company structure instead of a trust. Rest assured at Tolevsky Partners, we already have a solution waiting for you. We are just waiting on the detail from the Government before we make any changes.

Some trusts are exempt

Not everything is caught by this.

The following are generally outside the rules:

fixed trusts and widely held trusts
superannuation funds (including SMSFs)
charitable trusts
special disability trusts
deceased estates

And some income types are also excluded, including:

primary production (farming-type income)
certain income earned by vulnerable minors
non-resident withholding income
and some existing testamentary trust arrangements

So again, it’s targeted — but still broad enough to matter for most discretionary trust users.

A big incentive to restructure

There’s also a three-year window (from 1 July 2027 to 30 June 2030) where you may be able to restructure out of a discretionary trust without triggering income tax or capital gains tax.

In other words a “get your affairs in order” period.

For many this could mean moving into:

A company
Or a fixed trust structure

But , and this is important , just because the tax rules allow it doesn’t mean it’s always practical.

Things like stamp duty, property holdings, and business complexity can make restructuring expensive or messy in the real world.

How this interacts with small business

There is one interesting offset.

If you’re running a small business, one way to reduce exposure is simply:

Paying wages instead of trust distributions

Because wages aren’t caught by the 30% minimum trust tax.

And if you do restructure into a company, there are still benefits available, including:

The company tax rate (potentially 25% for eligible small businesses)
Dividend imputation credits
And more predictable tax outcomes

The bottom line

If you strip all the detail away, here’s what’s happening:

Discretionary trusts are moving from being high-flexibility tax tools to structures with a built-in minimum tax outcome.

That changes how useful they are for:

Income splitting
Using company beneficiaries
And smoothing tax across family members

And for many people, it means one simple question becomes a lot more important: “Is my structure still doing what I thought it was doing?” Because once rules like this land, it’s not the idea of a trust that changes…It’s how it actually behaves in the real world.