Australia's proposed 30% minimum tax on discretionary trusts could change how families distribute investment and business income. One of the biggest concerns is the impact on beneficiaries whose personal tax rate is below 30%.
The Government introduced the Treasury Laws Amendment (Tax Reform No. 3) Bill 2026 into Parliament on 14 October 2026.
If enacted as proposed, the new minimum tax would generally commence on 1 July 2028.
The proposal would require trustees of affected discretionary trusts to pay a minimum 30% tax on relevant trust income.
Individual beneficiaries would generally receive a tax offset reflecting the minimum tax paid by the trustee.
The important detail is that the offset would be non-refundable.
This could produce a different result for a beneficiary on a low marginal tax rate compared with someone on a higher rate.
Is the 30% discretionary trust tax already law?
No. As at 27 October 2026, the measure is proposed legislation.
The Government announced the measure in the 2026–27 Federal Budget, released consultation material in July and September, and introduced legislation on 14 October 2026.
The bill must complete the parliamentary process before the proposed rules become law.
Until then, existing trust taxation rules continue to apply.
Proposed commencement: 1 July 2028
The proposed tax is not an additional 30% tax already payable on your 2025–26 or 2026–27 trust distributions.
Families should review their arrangements without treating the proposal as enacted law.
How are discretionary trusts taxed now?
A discretionary trust can distribute income among eligible beneficiaries under the terms of its trust deed.
Under the existing general framework, beneficiaries who are presently entitled to trust income are commonly assessed on their share of the trust's net income.
Their individual tax circumstances affect the amount of tax payable.
For example, a beneficiary with little other taxable income may face a lower marginal tax rate than a beneficiary with a substantial salary.
This can affect the combined tax outcome for a family group.
Existing rules already restrict certain arrangements, including distributions involving minors, reimbursement agreements and other tax avoidance concerns.
How would the proposed 30% minimum tax work?
Under the bill, the trustee of an affected discretionary trust would generally pay minimum tax at 30% on the relevant trust taxable income.
Non-corporate beneficiaries would generally receive a non-refundable offset equal to 30% of their share of the income subject to the minimum tax.
The beneficiary would still need to account for their trust income under the applicable tax rules.
The offset would reduce the tax payable, but it could not create a refund for unused offset amounts.
This distinction matters when a beneficiary's own tax liability is less than the offset generated by the distribution.
Why could lower-income beneficiaries be worse off?
A person earning relatively little income may ordinarily pay less than 30% tax on an additional amount of taxable income.
Under the proposal, the trust would have already paid minimum tax at the trustee level.
The beneficiary's non-refundable offset could reduce their tax liability to zero, but any excess offset would generally be lost.
This means the combined tax outcome may be higher than under the current rules.
$20,000 trust distribution to a low-income adult beneficiary
Assume the distribution represents $20,000 of income subject to the proposed minimum tax.
The trustee-level minimum tax would be:
$20,000 × 30% = $6,000
The beneficiary would generally receive a non-refundable offset of $6,000.
If their tax liability available to absorb the offset were only $2,000, the offset could reduce that liability to zero.
The remaining $4,000 would not be refunded.
This illustrates how a non-refundable offset can leave trustee-level tax as a final cost.
The example excludes Medicare levy, other offsets, franking credits and special rules. It is not a personal tax calculation.
What happens to beneficiaries on higher incomes?
A beneficiary whose tax liability on trust income exceeds the 30% offset may need to pay additional tax.
The trustee-level minimum tax is not necessarily the final amount of tax associated with the distribution.
The beneficiary's personal circumstances and other income remain relevant.
| Beneficiary situation | Proposed treatment | Possible result |
|---|---|---|
| Low-income individual | Receives a non-refundable offset. | Some offset may be unused, leaving a higher combined tax cost. |
| Higher-income individual | Receives a non-refundable offset. | Additional personal tax may remain payable. |
| Corporate beneficiary | No beneficiary minimum tax offset under the proposal. | Significant additional tax cost may arise. |
| Excluded income or trust | Specific exemptions may apply. | Treatment depends on satisfying the relevant conditions. |
Why is Roy concerned about the non-refundable offset?
In RJS TV, Roy Sanderson raised the concern that the proposed rules could have a greater proportional effect on lower-income beneficiaries.
His suggested policy response is to make the minimum tax offset refundable.
Under that approach, a beneficiary whose personal tax liability is below the offset amount could potentially receive the unused balance as a refund.
This could preserve more of the benefit of lower personal tax rates for eligible recipients.
Roy's suggestion is a policy position, not part of the bill currently before Parliament.
Why does the Government support the change?
The Government argues that discretionary trusts can allow some taxpayers to reduce their combined tax by directing income to beneficiaries on lower marginal rates.
Its stated objective is to establish a minimum tax on affected trust income and reduce opportunities for income splitting.
Supporters view the proposal as a way to make taxation of trust income more consistent across taxpayers.
Critics have raised concerns about additional tax costs for family businesses, lower-income beneficiaries and existing trust arrangements.
The impact will depend on the final legislation and the circumstances of each trust.
What about distributions to bucket companies?
Some family groups use corporate beneficiaries, often called bucket companies, as part of their trust distribution arrangements.
Under the bill, corporate beneficiaries would not receive the minimum tax offset available to non-corporate beneficiaries.
This could create a substantial additional tax cost when affected trust income is distributed to a company.
Existing arrangements involving corporate beneficiaries should be reviewed before assuming their future tax treatment will remain unchanged.
Will every trust be subject to the 30% tax?
No. The bill includes exclusions for certain trust types and categories of income.
Proposed exclusions include:
- Qualifying fixed trusts.
- Charitable trusts.
- Special disability trusts.
- Complying superannuation funds.
- Deceased estates.
- Certain genuine testamentary trust income.
- Primary production income meeting the relevant conditions.
- Certain income relating to vulnerable minors.
- Qualifying distributions to eligible tax-exempt entities.
The precise application of these exclusions depends on the statutory definitions and conditions.
A trust should not assume it is excluded based only on its name or the purpose for which it was established.
Could family trusts restructure before 2028?
The proposed legislation includes options intended to help some affected trusts respond to the minimum tax regime.
These include a limited restructuring rollover and an election allowing eligible trusts to adopt fixed distribution entitlements.
Option 1: Continue under the minimum tax
Some families may choose to retain their existing trust arrangements and accept the minimum tax.
This requires modelling the expected tax cost and assessing whether the trust's commercial benefits justify retaining the structure.
Option 2: Elect fixed beneficiary entitlements
The proposed excluded election trust rules would allow eligible trusts to nominate beneficiaries and fix their distribution proportions.
The election could remove the trust from the minimum tax regime if the conditions are met.
The trade-off is reduced flexibility over future distributions.
Changing family circumstances could make a fixed arrangement unsuitable over time.
Option 3: Restructure under proposed rollover relief
The bill proposes a three-year restructuring period from 1 July 2027 to 30 June 2030 for eligible arrangements.
A qualifying rollover could defer certain income tax consequences when assets are moved into an eligible structure.
This does not mean every restructure would be free of tax, stamp duty or commercial costs.
Financing arrangements, asset ownership, succession plans and state taxes may also need to be considered.
How should families prepare?
Review trust deeds, ownership arrangements and the nature of trust income.
Identify individual, corporate and other beneficiaries receiving distributions.
Compare existing distribution arrangements with the proposed minimum tax.
Consider retaining the trust, a fixed entitlement election or eligible restructuring.
Confirm the final rules before making structural or distribution decisions.
Discretionary trust review checklist
- Obtain the current trust deed and amendments.
- Review recent trust distribution resolutions.
- Identify beneficiaries with lower taxable incomes.
- Review distributions to corporate beneficiaries.
- Identify income that may qualify for an exclusion.
- Consider how non-refundable offsets could affect family tax outcomes.
- Review existing family trust elections and related structures.
- Consider asset protection and succession implications.
- Assess potential restructuring costs.
- Revisit planning when the legislation is finalised.
Frequently asked questions
Is the 30% discretionary trust tax law?
No. As at 27 October 2026, legislation has been introduced into Parliament but has not become law. The proposed commencement is 1 July 2028.
Will beneficiaries pay 30% tax on top of their normal tax?
The trustee would pay the minimum tax. Non-corporate beneficiaries would generally receive a non-refundable offset against their own tax liability. The final combined tax outcome depends on the beneficiary and the relevant income.
Why does a non-refundable offset matter?
An offset can reduce tax payable, but a non-refundable offset cannot generate a refund of unused amounts. This may disadvantage beneficiaries whose personal tax liability is below the offset.
Will the tax apply to every family trust?
Not necessarily. The bill contains exclusions for certain trusts and income. Eligibility must be assessed against the proposed rules.
What happens to bucket companies?
Corporate beneficiaries would not receive the minimum tax offset under the proposal. This may increase the tax cost of distributions to companies.
Can a trust avoid the proposed tax by fixing distributions?
The bill includes a proposed election for eligible trusts to adopt fixed beneficiary entitlements. Strict conditions apply and the loss of future flexibility should be considered.
Should I restructure my trust now?
A restructure should not be undertaken solely because a bill has been introduced. Review the potential tax, legal, financing and succession consequences before deciding.
What should trust beneficiaries and trustees do now?
The proposed minimum trust tax could change the after-tax result of distributions that are currently common in family and business structures.
Lower-income beneficiaries may be affected by the non-refundable offset design. Corporate beneficiaries may face a different and potentially substantial tax cost.
The Government has also proposed exclusions and restructuring options that could be relevant to affected families.
The most useful step now is to understand your existing trust arrangements and model possible outcomes without assuming the legislation is final.
Could the proposed trust tax affect your family?
Your RJS accountant can help you review discretionary trust arrangements, assess potential distribution outcomes and consider the options available as the legislation progresses.
Speak to an RJS AccountantSources and further reading
Treasury Ministers: Second Reading Speech, Treasury Laws Amendment (Tax Reform No. 3) Bill 2026
Treasury Ministers: Exposure Draft Legislation, Minimum Tax on Discretionary Trusts
Australian Treasury: Capital Gains Tax and Discretionary Trusts Reform, Small Business Explainer
PwC Australia: Draft Law for the 30% Minimum Tax on Discretionary Trusts
Information current as at 27 October 2026. Proposed legislation may change before enactment.
This content is general commentary only and does not constitute advice. Before making any decision or taking any action in relation to the content, you should consult your professional adviser.
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