Entity Setup
Entity Foresight: Discretionary Trusts Face New Tax Floors in 2028
The era of trusts for tax-rate arbitrage is coming to an end—discretionary trusts will face a flat minimum 30% tax rate from mid-2028. Time to rethink your structure.
By NomadicTax Research Team • 5-8 min read • May 27, 2026
## What’s Being Introduced?
- From **1 July 2028**, distributions from **discretionary trusts** will be subject to a **minimum tax rate of 30%**, regardless of beneficiary’s individual marginal rate. ([pwc.com.au](https://www.pwc.com.au/federal-budget?icid=FB19-&utm_source=openai))
- This changes the long-standing advantage where trusts distribute income to low-rate individuals to reduce overall tax. Under new rules, that strategy will be limited.
## Why It Matters for Entity Setup
- Many family businesses use discretionary trusts to flexibly distribute income. This structure will become less tax efficient for those distributing to beneficiaries on low marginal rates.
- Distributions to higher taxed beneficiaries may still make sense, but administrative burdens and compliance scrutiny will increase.
## Other Structural Reforms to Consider
- Replacement of the 50% CGT discount (from 1 July 2027) applies to individuals and trusts. Combined with minimum rate on trusts, this amplifies the effect.
- Negative gearing reforms have knock-on structural effects—trusts holding rental properties will need to recast investment return projections.
## Strategies to Reconfigure Your Entity
- Consider **corporate beneficiaries (“bucket companies”)**: profits accumulation taxed at corporate rates may offer predictability, though subject to dividend and franked-distribution rules.
- Upgrade fixed entitlement trusts or partnerships, where income is allocated in fixed proportions—beneficiaries’ marginal rates still apply, but flexibility reduced.
- Restructure holdings in advance of 1 July 2028 to assess whether trust structure still yields enough benefit to justify running costs.
## Practical Example
The Smiths run a family business via a discretionary trust. Currently they distribute income to Mom and two adult kids on very low incomes to reduce tax overall. From 1 July 2028, any such distributed income will incur tax at **minimum 30%**, even if Mom or kids are in lower marginal tax brackets (e.g. 19% or Nil). Reallocating income or changing structure could help, but must balance against legal, accounting and interpersonal cost.
By 2028 the cost efficiency gap between trusts and companies or fixed trusts may narrow sharply. Entities with discretionary trusts should take professional advice now, modelling future tax burdens and possible structural alternatives.