Discretionary Trust Tax Reforms: August 2026 Update on the 30% Minimum Tax and Restructuring Relief
The 2026–27 Federal Budget announced significant changes to the taxation of discretionary trusts, including a new 30% minimum tax to apply from 1 July 2028 and expanded restructuring relief for taxpayers wishing to move out of discretionary trust structures.
Since the Budget announcement, Treasury has released a detailed consultation paper providing greater insight into how the Government is considering implementing the reforms. Consultation closed on 31 July 2026.
The proposals contained in the consultation paper have not yet received Government approval and are not yet law. The final legislation may therefore differ from the proposals currently being considered.
How is the 30% minimum tax proposed to operate?
Under Treasury's proposed model, the trustee of an affected discretionary trust would pay tax equal to at least 30% of the trust's taxable income from 1 July 2028.
The existing system of beneficiaries being assessed on their share of the trust's taxable income would otherwise continue. Individual and other eligible non-corporate beneficiaries would generally receive a non-refundable tax offset for the minimum tax already paid by the trustee.
The offset would not be refundable, could not be carried forward and could not be used to reduce Medicare levy liabilities. The practical effect is intended to ensure that affected discretionary trust income bears tax of at least 30%, subject to the proposed exclusions.
Corporate beneficiaries: a significant change to the existing advantage
The proposed treatment of corporate beneficiaries is particularly significant for family groups that currently distribute discretionary trust income to a private company, commonly referred to as a "bucket company".
Under the existing rules, appointing trust income to a corporate beneficiary can provide a tax deferral advantage. Instead of that income being assessed immediately to an individual beneficiary at a higher marginal tax rate, the corporate beneficiary is generally taxed at the applicable company tax rate. This can allow a greater proportion of the after-tax income to remain within the family group for investment or business purposes, with any additional personal tax generally arising only when profits are subsequently distributed from the company to its shareholders. The use of these arrangements remains subject to Division 7A and other integrity provisions.
The proposed minimum tax regime would substantially remove that advantage. Treasury proposes that, unlike individual and other eligible non-corporate beneficiaries, a corporate beneficiary would not receive a minimum tax offset for the 30% tax paid by the trustee.
The trustee would therefore pay the 30% minimum tax on the trust's taxable income, while the corporate beneficiary would continue to be separately assessed on its entitlement to that income at the applicable company tax rate, without receiving a credit for the tax already paid by the trustee. For a corporate beneficiary taxed at 30%, Treasury's proposed model could therefore result in tax of 30% at the trust level and a further 30% at the company level before considering the consequences of subsequently distributing the company's profits to shareholders.
If implemented in its current form, this could materially alter the effectiveness of existing corporate beneficiary arrangements and should form part of any future review of a family's trust and tax structure.
This represents a significant change for family groups that have historically used corporate beneficiaries to cap or defer tax on trust income. Treasury has indicated that denying the offset to corporate beneficiaries is intended to prevent the minimum tax from being undermined through corporate beneficiary and franking credit arrangements. If implemented in its current form, the proposal may materially reduce the usefulness of bucket company structures and should be considered carefully as part of any review of an existing discretionary trust structure.
Which trusts will be affected?
One issue that remains unresolved is precisely how a discretionary trust will be defined for the purposes of the minimum tax.
Existing taxation legislation generally approaches this by distinguishing discretionary trusts from fixed trusts. Treasury has acknowledged concerns that relying on existing concepts of a fixed trust may result in the new tax applying more broadly than intended, particularly where a trust deed gives the trustee powers to amend the deed, add beneficiaries or alter entitlements.
The eventual definition will therefore be important not only for traditional family discretionary trusts but potentially for other trust structures containing elements of trustee discretion.
Proposed exclusions
The Government has indicated that the minimum tax will not apply to a number of other trust structures, including:
fixed trusts;
widely held trusts;
complying superannuation funds;
special disability trusts;
deceased estates; and
charitable trusts.
Certain categories of income are also proposed to be excluded, including primary production income, certain income relating to vulnerable minors and amounts subject to particular non-resident withholding tax arrangements.
Discretionary testamentary trusts established for genuine testamentary purposes are also intended to be excluded, subject to applicable integrity requirements.
Expanded restructuring relief
One of the most significant developments since the Budget is the additional detail provided about the proposed three-year rollover relief commencing on 1 July 2027.
The rollover is intended to allow taxpayers to restructure out of affected discretionary trusts into other arrangements, such as a company or fixed trust, without triggering immediate direct income-tax consequences, including capital gains tax, solely as a consequence of the restructure.
Treasury proposes that the rollover be based on the existing Small Business Restructure Rollover but operate considerably more broadly. In particular, the proposed relief would:
not be confined to small businesses;
potentially be available to discretionary trusts regardless of their size;
extend to passive investment assets as well as business assets; and
not require the restructure to satisfy the existing "genuine restructure" requirement applicable to the Small Business Restructure Rollover.
This may make the transitional relief relevant not only to operating businesses but also to family investment and wealth-holding structures.
What conditions may apply to the rollover?
Treasury's current proposal suggests that the rollover will be subject to significant integrity requirements, which may include:
all, or essentially all, of the trust's transferable assets are transferred to the replacement structure;
ultimate economic ownership remains within the same family unit;
the transferee is not another discretionary trust subject to the minimum tax;
the replacement structure produces sufficiently fixed and transparent economic outcomes; and
relevant Australian residency requirements are satisfied.
The proposed relief is not intended merely to replace one legal structure with another structure that preserves substantially the same discretionary economic outcomes.
For example, Treasury has raised the possibility that a company with multiple classes of shares allowing dividends or capital returns to be redirected between family members on a discretionary basis may not qualify. The final rules may instead require economic interests in the replacement structure to be substantially fixed.
These details remain subject to consultation outcomes and final Government policy.
The rollover will not resolve every consequence of restructuring
Even if a restructure qualifies for Commonwealth income-tax rollover relief, that does not mean it can be implemented without other taxation, legal or commercial consequences.
Depending on the structure and assets involved, consideration may also need to be given to:
Victorian or other State duties;
land tax implications;
GST;
lender and financing consents;
contractual restrictions;
licences and regulatory approvals;
asset-protection consequences;
control and governance arrangements; and
estate and succession planning.
A restructure that produces a more favourable income-tax outcome may therefore be inappropriate if it adversely affects asset protection, succession planning or the commercial control of family assets.
Corporate beneficiaries and unpaid present entitlements
Treasury's consultation also considers the implications of the High Court's decision in Commissioner of Taxation v Bendel [2026] HCA 18.
The High Court held that a corporate beneficiary's unpaid present entitlement to trust income was not, of itself, a "loan" for the purposes of Division 7A.
Treasury is now seeking feedback on the implementation of an earlier proposed measure to bring unpaid present entitlements within the Division 7A regime and how that proposal should interact with the new minimum tax on discretionary trusts.
Family groups using corporate beneficiaries should therefore be cautious about assuming that the existing treatment of unpaid present entitlements will remain unchanged.
What should trustees and family groups do now?
The release of Treasury's consultation paper provides considerably more information than was available when the reforms were first announced. It does not, however, justify restructuring prematurely.
Trustees, family groups and business owners should instead begin reviewing their existing arrangements, including:
the terms of each trust deed and the nature of the trustee's discretionary powers;
the assets held in each trust and their current value and cost base;
existing distribution arrangements;
the use of corporate beneficiaries and unpaid present entitlements;
whether assets are used in a business or held as passive investments;
the asset-protection and succession-planning reasons for the existing structure;
the potential taxation and duty consequences of alternative structures; and
whether the proposed rollover period from 1 July 2027 may ultimately provide an appropriate opportunity to restructure.
The objective should not be to restructure simply because the tax rules are changing. A discretionary trust may continue to provide significant advantages in relation to asset protection, succession planning, management of family wealth and commercial flexibility. The appropriate structure will depend upon the circumstances of the particular family or business.
Conclusion
The proposed minimum tax represents a substantial change to the taxation of discretionary trusts. Treasury's July 2026 consultation paper has provided considerably greater detail about the likely direction of the reforms, particularly in relation to corporate beneficiaries and the proposed restructuring rollover.
However, important aspects of the regime remain under development. The information in this article is current as at 25 August 2026, and the proposals discussed above may change before final legislation is enacted.
Trustees and family groups should therefore avoid making structural changes based solely on the current proposals. Instead, existing arrangements should be reviewed in advance so that informed decisions can be made once the legislation is settled.
Any restructure should involve a coordinated review by the lawyer, accountant and tax adviser, taking into account not only taxation outcomes but also asset protection, succession planning, State taxes and duties, financing arrangements and the broader commercial objectives of the family or business.