Trusts and Minimum Tax: What’s Changing
The 2026 Budget introduces a 30% minimum tax on distributions from discretionary trusts, effective 1 July 2028. Also, a new minimum tax regime applies to capital gains following the replacement of the CGT discount in 2027. Key features include: full indexation of cost bases, minimum 30% tax on real gains, and stricter oversight of trust distributions. (austax.tools)
Why It Matters for Entities & Trust Structures
- Trusts are commonly used by high-net-worth individuals, family entities, or for asset protection. These new rules make some strategies less effective.
- Distributions to corporate beneficiaries may see double taxation in some cases. Entities need to assess pre-2028 structure viability. (forvismazars.com)
Best-Practice Recommendations
- Re-evaluate existing trust deeds to ensure they allow flexibility to adapt distributions based on new tax thresholds.
- Time distributions before 1 July 2028 where possible, to mitigate impact of minimum tax.
- Explore alternate entity forms, such as companies or family investment companies, where trust rules are onerous.
- Document substance: keep detailed records to substantiate beneficiaries and amounts to avoid audit risks.
- Engage professional entity structuring advice; compliance burdens and tax bills could rise dramatically.
Example Setup Comparison
| Structure | Before the reforms | After reforms (post-2027/28) |
|---|---|---|
| Family Discretionary Trust | Can distribute income to beneficiaries with marginal rates, claim deductions, CGT discount | Minimum 30% tax if distributions not to eligible beneficiaries; no CGT discount on gains for assets sold after 1 July 2027; increased scrutiny |
| Corporate entity | Dividend streaming, franking credits, but subject to corporate tax | May become more attractive for certain distributions, but corporate compliance costs remain; less flexible in distributing losses |
Steps for Entity Owners Before Reform Starts
- Perform projections: how much tax your trust will pay under new rules.
- Compare maintaining trust vs restructuring using companies or partnerships.
- Renegotiate or issue deeds where possible in advance.
- Consider locking in asset sales or distributing trust income before changes commence.
- Review beneficiary profiles and ensure distributions are justifiable and well documented.
For many individuals and businesses, trusts have been go-to entities. With Tax Reform No 1, their perks will narrow. The time to plan entity setups was yesterday—and the planning window closes July 2027–2028.