Australia Introduces Minimum Tax on Discretionary Trusts in New Tax Reform Bills

Australia’s government introduced two tax reform bills on October 14 that would require trustees of certain discretionary trusts to pay a minimum 30% tax on taxable trust income from July 1, 2028. The proposal targets tax planning arrangements that can lower the tax paid on income distributed through family trusts, but it also reaches structures used by some privately owned businesses. The legislation has been introduced to Parliament; the new minimum tax is not yet in force.

The measures are included in the Treasury Laws Amendment (Tax Reform No. 3) Bill 2026 and the Income Tax Rates Amendment (Minimum Tax on Discretionary Trusts) Bill 2026. They form part of a broader program of changes to Australian income and investment taxation, with the government offering exclusions and transitional options for trusts that could otherwise face the new charge.

How the proposed 30% minimum tax would operate

Under the bills, the minimum would be paid at the trustee level rather than simply added as a separate flat tax to every beneficiary’s personal bill. Beneficiaries other than companies would receive non-refundable tax offsets for tax payable by the trustee in relation to their trust income. Because an offset is non-refundable, its usefulness depends on the beneficiary’s own tax position. The distinction matters when assessing how the proposal would affect a particular distribution, rather than looking at the 30% figure in isolation.

Discretionary trusts give trustees flexibility over which beneficiaries receive income and in what proportions. That can serve genuine purposes, including asset protection and family succession planning. It can also allow income to be allocated among family members with different marginal tax rates, lowering the overall tax burden compared with income earned directly by a higher-taxed individual.

The government argues that this difference has become increasingly difficult to justify. In his October 14 second-reading speech, Treasurer Jim Chalmers cited Treasury analysis showing that families using discretionary trusts had an average tax rate about four percentage points lower in 2022-23 than families on comparable incomes without such trusts. He also said the number of discretionary trusts had more than doubled over two decades to more than 800,000. Those are government figures supporting its policy case, not evidence that every trust is used for tax minimisation.

According to the government’s October 14 announcement, more than 95% of individual tax filers do not receive trust income, while more than 90% of small businesses are expected to be unaffected in any given year. That estimate is relevant to the reform’s overall reach, although an individual business’s exposure will depend on its trust structure, income and eligibility for the proposed exclusions.

Which trusts are excluded, and what existing users can do

The minimum tax would not apply to all trusts. The government has identified fixed trusts, charitable trusts, special disability trusts and superannuation funds as excluded categories. Primary production income and certain income relating to vulnerable minors would also be exempt. Deceased estates and discretionary testamentary trusts established for genuine testamentary purposes are specifically excluded under the government’s announced framework.

Some distributions are also carved out. Payments from trusts to registered charities and deductible gift recipients would be exempt, as would distributions to other income-tax-exempt bodies, such as sporting clubs, subject to a reasonable cap. The bills also introduce a definition of fixed trusts intended to distinguish arrangements without material discretion over distributions from those targeted by the minimum tax.

For businesses and families currently using discretionary trusts, the government is offering two different ways to address the changes. Expanded rollover relief would begin on July 1, 2027, and be available for three years to help eligible taxpayers move into another structure, such as a company or fixed trust. Rollover relief is designed to reduce income-tax consequences of restructuring, but it should not be read as a blanket waiver of every potential legal, administrative or state tax cost.

The alternative is an election for income-tax purposes. A trust could nominate beneficiaries in advance and continue distributing income in line with that nomination to remain outside the minimum tax. The government says this would not require a legal restructure or remove the trust’s discretionary powers. It also expects that using the election would not trigger state or territory stamp duties, in contrast to the questions that can arise when ownership or assets are transferred during restructuring.

These options mean the bill is not simply a choice between paying 30% and closing a trust. They do, however, require trustees to examine how distributions are made, whether an election is workable for the beneficiaries involved and whether a different legal structure remains suitable for their business or estate-planning needs.

Tax advisers raise design concerns as further rules remain outstanding

The proposal has drawn criticism from tax professionals even as some support its aim of restricting income splitting. In a September 18 statement on the exposure draft, The Tax Institute said the proposed rules could produce unintended tax outcomes for corporate beneficiaries because the trustee-level offset was unavailable to companies. It warned that this could cause effective double taxation in some structures, potentially taking the overall burden above the intended 30% minimum. That is the institute’s assessment of the draft design, not a confirmed outcome for every corporate beneficiary under the newly introduced bills.

The institute also questioned whether the rules sufficiently addressed chains of trusts, foreign-resident beneficiaries and legitimate testamentary arrangements. It highlighted the practical expense of reviewing and changing existing structures, and argued that key administrative, notification and collection arrangements had not yet been settled. Some proposed exclusions and relief mechanisms were welcomed, but the institute wanted more time to examine the full regime.

That debate helps explain why the detailed design matters as much as the headline rate. Trusts can be used to hold operating businesses, investment assets and interests intended to pass between generations. Two trusts with similar annual income may have different outcomes depending on the identity of their beneficiaries, the kinds of income they receive and whether they qualify for an exemption or choose the proposed election.

The trust measures are not the only provisions in the October 14 package. The Treasury laws bill also contains further rules connected to the government’s capital gains tax and negative-gearing reforms, including provisions concerning new residential dwellings and exemptions for certain housing types. It provides transitional relief for excess superannuation contributions connected to the first year of Payday Super. These are separate measures within the same legislative package rather than elements of the 30% trust tax itself.

Treasury first consulted on implementing the discretionary-trust measure in July and released exposure drafts in September. The government has said further legislation and instruments are still needed to finalise aspects of its wider tax reform program. Parliament must consider the bills before the minimum tax can become law, leaving affected trustees to assess the proposed July 2027 relief window and July 2028 start date against the rules that ultimately pass.