With a proposed minimum tax rate of 30% on discretionary trust income from 1 July 2028, business owners should understand what is changing, who may be affected and what steps they can take to prepare.
If you operate your business through a family trust or discretionary trust, now is a good time to review your structure with your accountant.
In this guide, we explain the proposed 2026 trust tax changes, the potential impact on small businesses and the practical steps you should consider before making any decisions.
What Are the 2026 Discretionary Trust Tax Changes?
On 14 October 2026, the Australian Government introduced legislation to implement a minimum tax on discretionary trusts as part of its broader tax reform package.
Under the proposal, a minimum tax rate of 30% would apply to the taxable income of affected discretionary trusts from 1 July 2028.
The Government says the changes are intended to make the tax treatment of trust income more consistent with the tax rates paid by people earning wages and salaries.
The reforms also include options intended to reduce restructuring costs for businesses that may be affected.
Important: The legislation has been introduced into Parliament but has not yet become law as at 16 October 2026. The final rules, exemptions and implementation details should be checked as the legislative process progresses.
What Is a Discretionary Trust?
A discretionary trust is a legal structure commonly used by Australian families, investors and business owners to hold assets, operate businesses or manage investments.
A trustee manages the trust’s assets and distributes income to eligible beneficiaries according to the trust deed.
Unlike a fixed trust, a discretionary trust generally allows the trustee to decide how much income eligible beneficiaries receive, subject to the trust deed and applicable laws.
Business owners may use discretionary trusts for several reasons, including:
- Asset management: Holding business or investment assets separately from personal assets.
- Succession planning: Planning how family wealth and business interests may be managed over time.
- Income distribution flexibility: Allocating trust income among eligible beneficiaries, subject to tax rules.
- Business ownership: Operating a business or holding shares and other investments.
The proposed tax reforms do not mean that every trust will lose its benefits. However, some of the tax advantages associated with discretionary distributions may change.
How Will the Proposed 30% Minimum Tax Work?
Under the proposed rules, affected discretionary trusts would be subject to a minimum tax of 30% on their taxable income.
This could affect arrangements where trust income is distributed to beneficiaries who pay tax at lower marginal rates.
For example, a trustee might currently distribute income among several eligible adult family members, depending on their circumstances and the trust deed. Under the proposed reforms, the tax outcome could change because of the new minimum tax.
The actual impact will depend on the trust’s income, the beneficiaries, the type of income earned and whether an exemption or alternative arrangement applies.
It is important to understand that the proposed 30% minimum tax does not mean every trust beneficiary will automatically pay exactly 30% tax on all trust income. The interaction between trustee tax, beneficiary tax and available tax credits needs to be considered under the final legislation.
Who Could Be Affected by the Trust Tax Changes?
The changes may be relevant to small business owners, family businesses and investors who use discretionary trusts.
1. Small business owners
Some businesses use discretionary trusts to operate their business or hold business assets.
If your business operates through a discretionary trust, you should review how the proposed minimum tax could affect your taxable income, cash flow and existing distribution arrangements.
2. Family businesses
Family trusts are commonly used to manage income and assets across generations.
If your trust distributes income to different family members each financial year, the proposed rules may affect the flexibility of those arrangements.
3. Property investors
Investors who hold property or other investments through discretionary trusts should consider how the changes could affect their tax planning.
The outcome will depend on the trust’s circumstances and the nature of its income.
4. Business owners planning for succession
If you intend to transfer business interests or assets to family members in the future, the proposed reforms may be relevant to your longer-term plans.
Any restructuring should consider tax consequences, legal obligations, asset protection, financing and succession objectives rather than tax alone.
Not every small business using a discretionary trust will necessarily be affected in the same way. The Government has stated that more than 90% of small businesses will not be affected by the changes in any given year.
What Trusts and Income May Be Exempt?
The proposed reforms include exclusions for certain trust types and categories of income.
These include:
- Fixed trusts that satisfy the applicable requirements.
- Charitable trusts.
- Special disability trusts.
- Superannuation funds.
- Certain primary production income.
- Certain income relating to vulnerable minors.
The precise conditions matter. A trust should not assume that it qualifies for an exemption simply because it operates a business, holds property or supports family members.
For example, a trust described informally as a family investment trust may still need to be assessed against the legal definition and requirements in the proposed legislation.
Your accountant can help determine whether your trust may qualify for an exemption and what supporting documentation is required.
Can You Avoid the Proposed 30% Minimum Tax?
The proposed reforms include options for eligible trust arrangements to remain outside the minimum tax regime.
Two important options are being considered.
Option 1: Consider whether a fixed-distribution election is suitable
Under the proposed rules, certain discretionary trusts would be able to elect to make fixed distributions to nominated beneficiaries in specified proportions.
This option is intended to allow eligible trusts to avoid the minimum tax without necessarily undertaking a full restructuring.
However, the election would restrict future flexibility because the nominated beneficiaries and their distribution proportions would be locked in under the proposed arrangement.
This could be unsuitable for families whose circumstances change regularly or businesses that need flexibility in how income is distributed.
Option 2: Review whether restructuring is appropriate
Some businesses may consider restructuring out of a discretionary trust into another suitable structure.
The proposed reforms include rollover relief intended to reduce certain income tax consequences when eligible businesses restructure during the transition period.
However, restructuring can involve legal fees, accounting costs, changes to financing arrangements and other tax or regulatory consequences. State and territory duties and other costs must also be assessed under the applicable rules.
Do not restructure your trust simply because you have heard that the tax rate is changing. First, obtain advice on whether your trust will be affected and compare the long-term costs and benefits of the available options.
What Should Small Business Owners Do Now?
Although the proposed changes are scheduled to begin on 1 July 2028, planning early can give business owners more time to understand their options.
Here are five practical steps to consider.
1. Review your existing trust structure
Confirm the type of trust you operate, review its trust deed and identify how it holds assets and earns income.
If you have several trusts or related business entities, make sure the relationships between them are understood.
2. Understand your current tax position
Review your trust’s taxable income, annual distributions and existing tax arrangements.
Ask your accountant to explain how the proposed minimum tax could affect your circumstances if the rules proceed.
3. Assess your cash flow
Consider whether a change in tax liabilities could affect the amount of cash available to reinvest in your business, pay expenses or meet other commitments.
A tax change may have implications beyond the annual tax return, particularly for businesses with seasonal income or significant working-capital requirements.
4. Compare your available options
Ask your accountant to assess whether your trust may qualify for an exemption, whether a fixed-distribution election could be appropriate, or whether restructuring should be considered.
Compare the tax implications with legal costs, administrative requirements, succession planning and asset protection objectives.
5. Keep up with legislative developments
The legislation was introduced in October 2026, and further parliamentary consideration or amendments may affect the final outcome.
Avoid making irreversible decisions based solely on preliminary announcements or media reports. Review the final rules with a qualified tax professional before implementing changes.
Frequently Asked Questions
When will the discretionary trust tax changes start?
The proposed start date is 1 July 2028. As at 16 October 2026, the legislation has been introduced into Parliament but has not yet become law.
Will all family trusts be subject to the 30% minimum tax?
No. The proposed reforms include exemptions and alternative arrangements for eligible trusts. Whether a particular family trust is affected will depend on its structure, income and circumstances.
Does the 30% minimum tax mean every beneficiary pays 30% tax?
Not necessarily. The proposal concerns a minimum tax on the taxable income of affected discretionary trusts. The final tax outcome for a trust and its beneficiaries depends on the legislation and the applicable tax rules.
Should I change my family trust before 2028?
Not without first obtaining professional advice. Your existing structure may remain suitable, or another option may be available. The right decision depends on your business, family, assets and long-term plans.
Can I change from a discretionary trust to a fixed trust?
Potentially, but the legal and tax requirements must be assessed carefully. The proposed reforms also include a fixed-distribution election that may provide an alternative to restructuring for eligible trusts. These options have different consequences and should not be treated as interchangeable.
Will restructuring trigger capital gains tax or stamp duty?
The answer depends on the proposed relief provisions, the type of transaction and the applicable state or territory rules. Do not assume that all restructuring costs will be eliminated. Obtain tailored advice before transferring assets or changing ownership arrangements.
Final Thoughts: Get Ahead of the Trust Tax Changes
The proposed 2026 discretionary trust tax reforms are an important development for Australian business owners, family businesses and investors.
While the changes are not scheduled to begin until 1 July 2028, understanding the potential implications now can help you make informed decisions and avoid unnecessary last-minute changes.
The most important step is to understand your current structure, determine whether the proposed rules could apply to you and compare your options before making any changes.
At Tas Hawk, we believe good tax planning starts with understanding your business and its long-term goals.
Need help reviewing your business or family trust?
Contact Tas Hawk to discuss your circumstances, understand the potential impact of the proposed trust tax changes and identify the questions you should raise with your tax adviser.
Disclaimer: This article provides general information only and does not constitute financial, legal or tax advice. The proposed legislation may change before enactment. Tax outcomes depend on individual circumstances, the final law and applicable state and territory requirements. Seek advice from a qualified professional before making decisions about your trust or business structure.