Entity Setup
Entity Setup & Trusts Under the New Minimum Tax and Trust Distribution Rules
From mid-2027 to 2028, Australia will impose a minimum 30% tax on discretionary trusts and change trust distribution rules—critical for anyone using trusts in investment or business structures.
By NomadicTax Research Team • 6 min read • June 25, 2026
## 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](https://austax.tools/budget-2026-27/?utm_source=openai))
## 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](https://www.forvismazars.com/au/en/insights/latest-news/2026-2027-australian-federal-budget?utm_source=openai))
## Best-Practice Recommendations
1. **Re-evaluate existing trust deeds** to ensure they allow flexibility to adapt distributions based on new tax thresholds.
2. **Time distributions** before 1 July 2028 where possible, to mitigate impact of minimum tax.
3. **Explore alternate entity forms**, such as companies or family investment companies, where trust rules are onerous.
4. **Document substance**: keep detailed records to substantiate beneficiaries and amounts to avoid audit risks.
5. **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.