Entity Setup
Discretionary Trusts Face a Flat 30% Minimum Rate from July 2028: What Trust Users Should Know
Australia’s Budget 2026-27 proposes a new minimum tax rate of 30% on income of discretionary trusts from 1 July 2028, introducing major shifts for family groups and entities using trusts.
By NomadicTax Research Team • 5 min read • June 3, 2026
## What’s Changing for Discretionary Trusts
From **1 July 2028**, the proposed reforms will impose a **30% minimum tax rate** on the taxable income of discretionary trusts. This is part of broader moves to align tax on asset income with income from work, closing gaps which have allowed trusts to distribute income in a way that avoids higher rates. ([treasury.gov.au](https://treasury.gov.au/policy-topics/taxation/budget2026-27?utm_source=openai))
Additionally, the reform package includes **rollover relief** for trusts that wish to restructure, available for three years beginning **1 July 2027**, in recognition that many families and businesses may adjust their structures in response. ([treasury.gov.au](https://treasury.gov.au/policy-topics/taxation/budget2026-27?utm_source=openai))
## Key Implications
- **Reduced flexibility**: Discretionary trusts often distribute income to lower-taxed beneficiaries. A flat minimum tax reduces benefit of income splitting by pushing taxation into trust first rather than distributing to low-rate beneficiaries.
- **Restructuring pressure**: Families currently using discretionary trusts will need to assess whether to restructure (e.g. forming a bucket company) to preserve after-tax outcomes where possible.
- **Timing and planning**: Since the minimum rate kicks in 1 July 2028, decisions around winding up or changing trusts must consider this lead-in period.
## Practical Examples
| Current Scenario | Examples Under New Regime |
|------------------|-----------------------------|
| Family discretionary trust with three beneficiaries in lower tax brackets | Taxable income taxed at 30% at trust level before distributions—even if all beneficiaries have marginal rates lower—unless exceptions apply. |
| High income trust distributing to high income beneficiaries anyway | The 30% minimum may be similar or slightly higher than what beneficiaries pay, reducing benefit but perhaps less disruptive. |
Suppose your trust earns $100,000 of net income: under current rules you may distribute fully to beneficiaries with marginal rates of, say, 19%, 32%, 37%, thus overall tax burden is mix. Under new rules you’ll pay 30% tax at trust, reducing net to $70,000 before distribution,
## Exceptions & Transitional Relief
- Exemptions might apply in certain circumstances (small trusts, agricultural income, specific trust types). These are still being finalized.
- **Rollover relief**: Ability to restructure without triggering adverse CGT, stamp duty or trust income tax consequences during a fixed period after 1 July 2027. Useful for families considering changes now.
## What Trust Stakeholders Should Do Now
- **Audit current trust income flows**: Understand which beneficiaries are benefiting now, and how much tax is paid within versus via distributions.
- **Model future tax burden** under both current and proposed regime to estimate how much the minimum 30% tax will cost in dollars.
- **Evaluate alternative structures**: Bucket companies, hybrid entities, joint ownership.
- **Document trust deeds** to ensure flexibility for distribution and ensure deeds allow restructuring if needed.
- **Track legislative progress**: These are proposals—keep an eye on exposure drafts and parliamentary debates. ATO guidance will clarify many open questions.
## Key Takeaways
- Discretionary trusts are moving from flexible tax tools toward more constrained entities with less ability to shift income among beneficiaries.
- The tax burden is anticipated to increase for many trust users, especially family trusts distributing to low-rate individuals.
- Planning now is possible—through restructuring, deferring income, or choosing asset type investments that may avoid or mitigate the minimum tax.
> **Action point:** If you have or are using a discretionary trust, engage a tax professional now to build forecasts under the new regime and consider restructuring options where needed. Timing your changes to benefit from rollover relief could save significant tax in 2028 and beyond.