Entity Setup
Entity Setup Strategies Amid Discretionary Trust Tax Reforms
The proposed minimum 30% tax on discretionary trusts from mid-2028 means it's time to evaluate entity structure: trusts, companies, fixed trusts—and what will optimise tax outcomes under the new rules.
By NomadicTax Research Team • 7 min read • May 28, 2026
## What the Reforms Propose for Trusts and Entities
- Starting **1 July 2028**, discretionary trusts face a **minimum tax rate of 30%** with some exceptions. ([budget.gov.au](https://budget.gov.au/content/04-tax-reform.htm?utm_source=openai))
- Rollover relief allows trustees to restructure entities from **1 July 2027** until **30 June 2030** (three-year window) to prepare for the changes. ([budget.gov.au](https://budget.gov.au/content/04-tax-reform.htm?utm_source=openai))
- Amendments will affect individuals, trusts, and partnerships when calculating capital gains and eligibility under CGT discount rules. Loss carry-forward and negative gearing changes will also interact with your chosen structure. ([budget.gov.au](https://budget.gov.au/content/04-tax-reform.htm?utm_source=openai))
## Possible Structure Alternatives & Their Implications
| Entity Type | Advantages | Disadvantages under New Rules |
|---|---|---|
| **Fixed trusts** or hybrid structures** | Might allow avoidance of discretionary distributions; can be more predictable for tax planning. | May lose flexibility; could incur higher compliance & legal cost to establish or change. |
| **Companies** | Flat tax rate, limited liability; more straightforward tax reporting. | May miss out on trust-specific concessions; profit distributions taxed as dividends. |
| **Family trusts** | Elections and concessions previously allowed, but reforms diminish their tax advantages under discretionary distributions. | Discretionary portion taxed at 30%; fewer beneficiaries may be conducive. |
| **Self-managed Superannuation Funds (SMSFs)** | Typically excluded from discretionary trust minimum tax; favourable CGT exclusions half discount still available through super rules. | Restricted by superannuation laws and contribution caps; liquidity and access issues. |
## Planning Steps for Entity Setup Before the Reforms
1. **Assess current distributions**: Identify how much of your income flows through discretionary trusts and how it would be taxed under the minimum tax. |
2. **Use the rollover period (from July 2027)** to restructure: Shift assets or income streams into more favourable entities before the reforms take full effect. |
3. **Compare marginal tax versus company tax rates**: In some cases, using a company to receive income (then dividends) may be more efficient than experiencing the 30% trust tax. |
4. **Legal and compliance review**: Ensure changes respect legal requirements (trust deeds, beneficiary rights, state legislation) and maintain proper valuations. |
## Example of Structuring Under New Regime
Suppose a family owns a property portfolio under a discretionary trust, distributing income among beneficiaries in high tax brackets (> 37%). Under new rules, the trust income will be subject to a **30% flat minimum tax**—higher than some beneficiaries’ brackets. If restructured into a company, some profits could be retained or paid as franked dividends, potentially creating tax savings and better cash flows. |
Alternatively, fixed trusts might be arranged to limit discretionary distribution, but they must comply strictly with fixed entitlements. |
## Key Takeaways for Entity Setup
- **Act early**: Use the window from 12 May 2026 until 1 July 2027 to plan, restructure, or dispose of assets to avoid unwanted tax outcomes. |
- **Seek professional advice**: Trusts and companies involve complex laws—incorrect restructuring can incur unexpected tax liabilities. |
- **Keep an eye on enacted legislation**: Reforms announced in the Budget may still require full passage through Parliament before being law. |
By understanding entity impacts now, you can structure your affairs to retain flexibility, limit tax impact, and align with long-term goals under the new environment.