Trusts in Focus
The 2026-27 Budget introduces a 30% minimum tax on discretionary trusts distributing to non-corporate beneficiaries, effective from 1 July 2028. Together with changes to CGT and negative gearing, this increases compliance and reshapes how trusts distribute income. (budget.gov.au)
Key Compliance Requirements and Deadlines
- Income years starting 1 July 2028 will be subject to the new minimum tax rules for discretionary trusts. Start preparing in advance.
- From 1 July 2027, small businesses and others may need to restructure or consider alternates, especially if relying on trust distributions to non-corporate individuals. Transitional roll-over relief is available for three years from 1 July 2027. (budget.gov.au)
- CGT reforms and negative gearing changes commence 1 July 2027 and will affect how trust‐held assets generate gains and losses. (budget.gov.au)
Actionable Insights for Trustees and Beneficiaries
- Review Trust Deed: Consider whether current deed allows flexibility in distributing to corporate vs non-corporate beneficiaries. Use corporate beneficiaries where advantageous.
- Plan distributions ahead of 2028 to take advantage of existing rules if beneficial, while ensuring any changes align with tax law.
- Record Keeping: Benefit from maintaining clear records of cost base, dates of acquisition, improvements vs maintenance, and attribution of beneficiary type.
- Seek restructuring: Some trust arrangements may benefit from shifting assets or beneficiaries before 2027/28 to avoid minimum tax exposure.
Example Scenarios
- A discretionary trust distributes to a spouse (non-corporate). Post-1 July 2028, 30% tax applies. If instead distribution is made to a private company they can circumvent minimum tax—subject to deed powers and tax law.
- If the trust holds appreciated shares bought in 2010, selling after 1 July 2027 invokes CGT with indexation + minimum 30%, not the 50% discount, possibly increasing the capital gains tax liability.
Compliance Best Practices
- Start modelling trust tax projections for 2027-28 now.
- Ensure the trust deed is flexible, or consider amending (if allowed) to facilitate different beneficiary classes.
- Engage actuary or tax adviser for trusts with mixed assets.
- Discuss with beneficiaries the implication of receiving distributions and possible tax obligations in advance of the 2028 tax year.
Broader Considerations
- These reforms may encourage more use of company structures for passive income.
- Greater alignment with shareholders/beneficiaries regarding distributions is required.
- Increased compliance could raise costs, especially for smaller family trusts.
Conclusion
Trustees and beneficiaries have a lead time—around 18–24 months from Budget night—to adapt. Early simulation and legal/tax structuring can save significant tax dollars.