What Australian Families Need to Know About Proposed Trust Tax Changes
Family trusts have long been one of the most popular wealth management structures in Australia.
They are commonly used by business owners, investors and families to hold investments, manage succession planning and distribute income among family members in a flexible manner. These structures are also widely used by family groups and small businesses, with roughly 350,000 trusts used to operate small businesses in Australia. Families reviewing trust structures should consider whether their current arrangements still align with their broader financial goals and long-term strategy.
However, following the 2026 Federal Budget and subsequent discussions around trust taxation, many Australians have been left wondering whether family trusts remain as effective as they once were.
One of the most widely discussed proposals has been a proposed minimum tax: a 30 per cent minimum tax on discretionary trust income, proposed to start on 1 July 2028.
While the final form of any reforms remains subject to legislation and ongoing policy development, the debate has highlighted an important question for Australian families:
How would a 30% trust tax affect family trusts if implemented?
Why Family Trusts Have Been So Popular
Family trusts, often referred to as discretionary trusts, have traditionally provided flexibility because the trustee distributes income and capital at their discretion under the trust deed among beneficiaries.
Common reasons families establish trusts include:
Asset protection.
Succession planning.
Family wealth preservation.
Holding investment assets.
Operating family businesses.
Managing tax outcomes within existing tax laws.
These trust structures are commonly used to manage business income, investment portfolios and other income within existing tax rules.
For many Australians, the flexibility of discretionary trusts has been one of their most valuable features.
What Is the Proposed 30% Trust Tax?
The proposal that generated significant attention involved what the budget proposes: a 30 per cent minimum tax on discretionary trusts, operating as a trust minimum tax or cent minimum tax at the trustee level on the trust’s taxable income.
Under such a model, where beneficiaries are below the relevant marginal rates, a top up tax could apply so the effective tax rate on trust income does not fall below 30 per cent, with the measure proposed to start from 1 July 2028.
The proposal was largely directed at reducing perceived tax advantages associated with income splitting through discretionary trusts.
Importantly, the details, scope and implementation of any reforms have been subject to significant consultation and debate. The proposed rules and any draft legislation still need careful review before families act.
Why Did the Government Consider Trust Tax Reform?
Trust taxation has been debated for decades.
Supporters of reform argue that discretionary trusts can affect income tax outcomes and reduce the total tax paid across family groups, especially where beneficiaries on a lower marginal tax rate are used for income splitting.
Critics of reform argue that trusts serve many legitimate purposes that extend far beyond taxation, including:
Asset protection.
Estate planning.
Family business succession.
Wealth preservation.
Protection of vulnerable beneficiaries.
Many existing discretionary trust structures are used by private groups and private enterprise for non-tax as well as tax reasons, so the tax implications extend beyond simple rate changes.
This tension has placed family trusts at the centre of ongoing tax policy discussions.
How Could a 30% Trust Tax Affect Family Trusts?
If a minimum trust tax rate were introduced, the impact could vary significantly depending on the proposed measures. Under those changes, the trustee may need to pay tax at the trust level before considering each beneficiary’s own position and the tax paid across the structure.
Reduced Flexibility in Income Distribution
One of the primary attractions of discretionary trusts is the ability to distribute income among beneficiaries according to changing circumstances.
A minimum tax rate could reduce the effectiveness of this strategy where beneficiaries would otherwise be taxed below 30%, and it may trigger trustee tax or top-up outcomes; corporate beneficiaries will not receive credits for trustee tax paid. This is especially relevant where distributions are made to non corporate beneficiaries with low other income, because tax paid at the trustee level may not fully align with their personal tax position.
Higher Tax Bills for Some Families
Families currently distributing trust income to adult children, retirees or beneficiaries with lower taxable incomes could potentially face higher overall tax liabilities, and higher tax payable may also arise where distribution strategies previously relied on bucket companies or corporate beneficiaries.
The extent of any increase would depend on the final design of the legislation. Under the proposal, differences in the company tax rate may matter less if tax credits are not available to beneficiaries for tax paid at trustee level, increasing the risk of double taxation.
Changes to Investment Structures
Some investors may reassess whether assets should continue to be held through discretionary trusts or whether alternative structures, such as fixed trusts, companies or other structures, may be more appropriate.
However, taxation should rarely be the sole factor when evaluating a structure. Restructuring purely to avoid tax can create significant compliance risks and requires careful consideration, particularly where expanded rollover relief has not yet been confirmed in legislation.
Family Trusts Offer More Than Tax Benefits
One of the biggest misconceptions surrounding family trusts is that they exist purely to reduce tax.
In reality, many families use trusts for asset protection, succession, and to hold capital gains producing assets, not just for annual tax benefits. That remains true even if proposed tax rules alter how trust distributions are assessed.
Asset Protection
Trust structures can help protect assets from:
Business risks.
Creditor claims.
Bankruptcy.
Relationship breakdowns.
For professionals, business owners and investors, these protections can be extremely valuable.
Succession Planning
Trusts can facilitate the orderly transfer of wealth between generations and assist with long-term family planning, and succession planning may also involve testamentary arrangements, deceased estates and discretionary testamentary trusts where relevant to the family situation.
Family Wealth Preservation
Many families use trusts to preserve wealth and investments across family members over multiple generations, including managing investment assets, capital gains tax exposure and long-term distribution strategies rather than focusing solely on short-term tax outcomes.
These benefits would remain relevant regardless of future tax reforms.
Example: How a 30% Trust Tax Could Work
Imagine a family trust earns $100,000 of net income for income tax purposes.
Under existing rules, that income may be distributed among beneficiaries according to the trust deed and individual circumstances.
For example:
Parent A receives $30,000.
Parent B receives $30,000.
Adult Child receives $40,000.
Each beneficiary pays tax based on their personal marginal tax rates. Under a proposed trustee-level minimum tax, the total tax outcome could differ depending on each beneficiary’s other income and effective tax rate.
If a minimum 30% tax rate applied to trust distributions, some of the flexibility and tax efficiency currently associated with discretionary trusts could be reduced.
The exact impact would depend on the final legislation and the circumstances of each beneficiary.
Should Families Be Considering Alternatives?
In most cases, it would be premature to restructure assets solely because of proposed trust reforms.
Every structure has advantages and disadvantages.
Depending on a family’s objectives, alternatives should be assessed not only for tax outcomes but also for tax implications, compliance, and family control, and may include:
Personal ownership.
Companies.
superannuation funds.
Testamentary trusts.
Other wealth structures.
charitable trusts and some superannuation funds sit in different regulatory categories and may not be affected in the same way as family discretionary trusts.
The appropriate structure depends on factors including:
Tax outcomes.
Asset protection needs.
Succession planning objectives.
Family circumstances.
Investment goals.
Why Professional Advice Is More Important Than Ever
Periods of legislative uncertainty often lead investors to make decisions based on headlines rather than long-term strategy, and they can also increase compliance risks for trustees if new minimum tax rules are introduced.
However, the most effective structure for a family is rarely determined by tax alone.
Non-compliance may also lead to significant penalties from the ATO, and families in sectors such as real estate and financial services should keep AML/CTF compliance in view.
A properly designed strategy should consider:
Retirement planning.
Asset protection.
Estate planning.
Family succession.
Long-term investment objectives.
Changes to trust taxation may alter some planning opportunities, but they do not necessarily eliminate the reasons many families choose trust structures in the first place, and advice should cover both tax planning and compliance under any proposed rules.
Frequently Asked Questions
What is a family trust?
A family trust, or discretionary trust, is a legal structure typically controlled by a trustee, who can distribute discretionary trust income and assets among beneficiaries according to the trust deed.
Has the 30% trust tax been fully implemented?
Trust tax reform proposals have been subject to consultation, debate and policy development. The budget announcement outlined a proposed 30 per cent minimum tax on discretionary trusts from 1 July 2028, but implementation depends on legislation. Families should review the budget papers and any later draft legislation rather than assuming the measure is final. Investors should seek professional advice regarding current legislation and how any future changes may affect their circumstances.
Why are family trusts used?
Family trusts are commonly used for asset protection, wealth preservation, succession planning, investment ownership and family business structures, and are also used by family groups and small businesses to manage business income and investments flexibly.
Would a 30% trust tax affect all trusts?
Any impact would depend on the final legislation and the specific type of trust involved, with the position likely to differ for discretionary trusts compared with fixed trusts, charitable trusts, discretionary testamentary trusts existing, and some superannuation funds.
Are family trusts still worthwhile?
For many families, yes. Trusts can provide benefits that extend beyond taxation, including asset protection, succession planning, and long-term wealth management, and they may still be worthwhile where capital gains tax planning remains important despite changes to trust minimum tax settings.
Should I wind up my family trust because of proposed changes?
Major structural decisions should not be made based solely on proposed reforms. Winding up, converting or resettling a trust may trigger tax implications, including capital gains tax, and should only occur after careful consideration of your circumstances before making any changes. Before making structural changes, many families benefit from obtaining personal financial advice that considers tax, succession and asset protection outcomes together.
What alternatives exist to family trusts?
Depending on your objectives, alternatives may include companies, fixed trusts, superannuation funds, personal ownership, investment bonds and other structures, but each has different tax rules, tax payable outcomes and succession implications.
Final Thoughts
The debate surrounding a potential 30% trust tax has prompted many Australians to review how their family wealth is structured. Family trust planning may also be affected by broader capital gains tax changes, including proposals to replace the current 50 per cent CGT discount from 1 July 2027 if enacted.
While taxation is undoubtedly important, family trusts continue to provide benefits that extend far beyond tax outcomes alone.
Asset protection, succession planning, family wealth preservation and investment flexibility remain important considerations when evaluating any structure.
Rather than reacting to headlines, families should focus on developing a long-term strategy that aligns with their financial goals, family circumstances and retirement objectives.
At Money Path, we help individuals and families review trust structures, investment ownership and wealth transfer strategies in light of both trust tax and capital gains tax changes to ensure they remain appropriate in an evolving legislative environment.
