Entity Setup
Entity Setup in Light of Minimum Tax for Discretionary Trusts and New Tax Rate Rules
Australia is introducing a 30% minimum tax on discretionary trusts from 2028—how structures should adapt to the changing rules.
By NomadicTax Research Team • 6 min read • July 30, 2026
## What Are the Changes Impacting Trust-Structures?
- From **1 July 2028**, **discretionary trusts** will face a **minimum 30% tax rate**, with **some exceptions**. ([treasury.gov.au](https://treasury.gov.au/policy-topics/taxation/budget2026-27?utm_source=openai))
- Rollover relief will be available for transitioning structures from **1 July 2027 for three years**, helping those wanting to restructure. ([treasury.gov.au](https://treasury.gov.au/policy-topics/taxation/budget2026-27?utm_source=openai))
- Other changes via the Treasury Laws Amendment (Tax Reform No. 1) Bill 2026 require non-refundable labour income offsets and standard deduction for work expenses. ([aph.gov.au](https://www.aph.gov.au/Parliamentary_Business/Bills_Legislation/Bills_Search_Results/Result?bId=r7493&utm_source=openai))
## What the Minimum Tax Means for Trusts
- Discretionary trusts can no longer reduce tax liability by distributing income to beneficiaries taxed at lower personal rates to avoid tax. A base level of tax (30%) is guaranteed at the trust level for income not distributed or distributed to entities with low tax rates.
- Some exemptions may apply (e.g., small businesses or charities) but rely on legislative detail. Trusts best placed if structured to distribute efficiently.
## Strategic Entity Setup Options
- **Family trusts**: Reassess whether distributing income to family members with lower personal tax brackets still works under the minimum tax. Distributing all taxable income may avoid trust-level tax under 30% if recipients’ marginal rates are higher—but check distributions carefully.
- **Hybrid or mixed structures**: Consider partnerships or companies for certain operations; company tax rate (25-30%) may compare favourably with trust minimum tax and smoother compliance.
- **Rollover for restructuring**: Use the 3-year window from **1 July 2027 to 30 June 2030** to restructure existing discretionary trusts. Restructure operations, assets, or operating entities while preserving benefits. ([treasury.gov.au](https://treasury.gov.au/policy-topics/taxation/budget2026-27?utm_source=openai))
## Practical Examples
- A trust owning income-generating rental property: If income is retained within the trust or distributed to beneficiaries with low rates, minimum tax of 30 % will bite. Consider distributing to higher rate beneficiaries or converting to company ownership.
- Operating business in trust – evaluate whether shifting business operations to a company with trust as shareholder makes sense if most income is retained or distributed to minors or non-taxpayers.
## Steps for Setting Up or Reconfiguring Entities Now
1. **Audit current trust structures**: Identify where incomes flow, whether distributions are optimized under the new minimum tax, and where beneficiaries stand.
2. **Model tax impact**: Compare current structure vs company or hybrid entity choices over revenues, distributions, compliance costs.
3. **Seek legal/financial advice early**: Draft necessary deeds, consult with professionals to ensure compliance and avoid unintended tax outcomes.
4. **Plan exits or transitions** in assets or business arrangements before 1 July 2027 so that you can use rollover relief available.
By adapting your entity structures now, you can retain tax efficiency and control compliance costs before sweeping reforms take full effect.