Compliance
Discretionary Trusts & Minimum Tax: Compliance Dos and Don’ts for Trustees in Australia
New rules from Budget 2026-27 mean discretionary trusts will face a minimum tax rate—here’s what trustees must do to stay compliant.
By NomadicTax Research Team • 5 min read • August 7, 2026
## Understanding the New Obligations
Trustees of discretionary trusts have historically enjoyed flexibility over income distribution. Under the 2026-27 Budget reforms:
- From **1 July 2028**, discretionary trusts will pay a **minimum 30% tax rate** on undistributed or beneficiary-distributed income, with some exceptions. ([budget.gov.au](https://budget.gov.au/content/04-tax-reform.htm?utm_source=openai))
- **Rollover relief** is available from **1 July 2027** to 30 June 2030 to help with structural changes. ([budget.gov.au](https://budget.gov.au/content/04-tax-reform.htm?utm_source=openai))
## What Trustees Need to Do Now
- Review **trust deed** to confirm powers around income distribution, rolling over of income, and beneficiary entitlement. If distributions are delayed, prepare for higher tax at trust level.
- Consult tax advisers to determine whether **switching to fixed trusts** might provide better outcomes for certain beneficiaries.
- Ensure record-keeping is robust: identification of beneficiaries, their TFNs, distributions made, and income retained. Increased compliance scrutiny likely. ■
## Key Compliance Steps
- **Beneficiary TFNs**: Under the Modernising Tax Administration Systems (MTAS) project, trustees will soon be required to report beneficiaries’ tax file numbers in the Statement of Distribution. This is aimed at boosting pre-fill and automating reporting. ([aph.gov.au](https://www.aph.gov.au/Parliamentary_Business/Bills_Legislation/bd/bd2526/26bd056?utm_source=openai))
- **Structural review**: Compare tax outcomes under current discretionary setup versus possible fixed trust or corporate structures.
- **Distribution policies**: Regularize decisions around distributing income vs retaining within trust. Deferred distributions may now carry heavier tax costs.
## Common Pitfalls & Examples
- **Pitfall**: Retaining income in trust into later years without distributing, expecting beneficiaries to draw down—minimum trust tax could erode benefits.
- **Example**: Trust with steady profits but low or no distributions will soon incur 30% tax, potentially surpassing the previous top marginal rate for some beneficiaries.
- **Pitfall**: Failure to include beneficiary TFNs when required, leading to delays, penalties, potential auditing.
## Actionable Checklist
- Confirm trust structure and deed permissions for distributions and elections under new rules.
- Engage in forecasting for tax liabilities post-1 July 2028.
- Build backlog: prepare all beneficiary details, ensure TFNs up to date.
- Evaluate whether splitting income between beneficiaries helps reduce tax burden (subject to trust terms and legal constraints).
By staying ahead of structural, procedural, and reporting changes, trustees can avoid unexpected consequences and optimize tax outcomes for both trusts and beneficiaries.