Proposed 30% Minimum Tax for Family Trusts: What It Could Mean for Australian Taxpayers

Introduction

In this year’s Federal Budget, the Australian Government announced a proposal to introduce a 30% minimum income tax rate for discretionary (family) trusts, effective from 1 July 2028.

If enacted in its current form, this would represent one of the most significant reforms to the taxation of family trusts in decades, with potentially far-reaching implications for small businesses, investment structures and high-net-worth families.

Why Is the Government Proposing This Change?

According to the Government, discretionary trusts have long been used as an effective income-splitting vehicle.

By distributing trust income to family members or other eligible beneficiaries on lower marginal tax rates, many families are able to reduce their overall tax liability. Treasury estimates suggest that households using discretionary trusts pay, on average, an effective tax rate around four percentage points lower than comparable households that do not use trust structures.

Under the proposed rules, even if trust income is distributed to low-income beneficiaries, the trust itself would first be required to pay a minimum 30% income tax.

Individual beneficiaries would still be required to declare their share of the trust income in their personal tax returns, but they would only receive a non-refundable tax offset for tax already paid by the trust.

As a result, one of the principal tax planning advantages of discretionary trusts—the ability to distribute income among family members with different tax rates—would be significantly reduced.

1. A Key Concern: Potential Double Taxation of Corporate Beneficiaries

One of the most widely discussed issues arising from the proposal is its impact on corporate beneficiaries.

Many family trusts currently distribute profits to a company beneficiary, allowing income to be taxed at the corporate tax rate while retaining profits within the business and deferring further personal taxation.

Under the proposed regime:

• The trust would first pay the 30% minimum tax; and
• The corporate beneficiary would not receive a tax credit for the tax already paid by the trust.

This creates the possibility that the same income could effectively be taxed both at the trust level and again when received by the company, substantially reducing the tax efficiency of corporate beneficiary structures.

The Government has indicated that this measure is intended to prevent taxpayers from circumventing the minimum tax regime by cycling trust income through corporate beneficiaries.

2. Industry Concerns: Stamp Duty May Become the Real Cost

The Budget also proposes a transitional measure.

From 1 July 2027, eligible taxpayers would be able to access three years of Capital Gains Tax (CGT) rollover relief, allowing discretionary trusts to restructure into companies or fixed trusts without triggering an immediate CGT liability.

However, many tax professionals have expressed concern that while the Federal Government is proposing CGT relief, it has not addressed State and Territory stamp duty.

Commentary published by the Australian Financial Review has highlighted that many discretionary trusts hold residential, commercial or investment properties. If these trusts restructure to avoid the proposed 30% minimum tax, transferring property between entities could trigger substantial stamp duty liabilities.

Unlike CGT, stamp duty is imposed under State and Territory legislation and is generally not covered by the proposed Federal tax concessions.

This issue may be particularly significant in jurisdictions such as New South Wales and Queensland, where property values—and therefore potential stamp duty costs—can be substantial.

As a result, many taxpayers may face a difficult choice:

• Retain the existing trust structure and potentially pay higher income tax in future; or
• Restructure the trust and incur significant upfront stamp duty costs.

The next two to three years are therefore expected to become an important planning window for families and businesses considering whether their existing trust structures remain appropriate.

Our Recommendations

Clients with discretionary trust structures should begin reviewing their existing arrangements well before the proposed commencement date, particularly where they involve:

• Family trusts with corporate beneficiaries;
• Trusts holding residential or commercial property;
• Small business operating structures; or
• Wealth succession and estate planning arrangements.

As the proposed legislation has not yet been enacted, the final rules may change before implementation. Nevertheless, undertaking an early review of existing structures can help identify potential risks, evaluate restructuring options and minimise future tax and compliance costs.

Conclusion

The proposed introduction of a 30% minimum tax on discretionary trusts has the potential to fundamentally change how family trusts are used for tax and succession planning in Australia.

Although the legislation is still at the proposal stage, the possible consequences are significant—particularly for taxpayers relying on income splitting, corporate beneficiary arrangements or property-holding trust structures.

Given the complexity of the proposed reforms and the interaction between Federal tax law and State stamp duty regimes, affected taxpayers should seek professional advice before making any structural changes.