Entity Setup
Entity Structure After Trust Tax Reforms: What Discretionary Trusts Need to Know
With new minimum tax rates and TFN reporting changes on the way, discretionary trust-based structures will need careful review to stay compliant and cost-efficient.
By NomadicTax Research Team • 5-8 min read • May 17, 2026
## What’s Changing for Discretionary Trusts
Starting **1 July 2028**, trusts in Australia will face a **30% minimum tax rate** on distributions from discretionary trusts—with very few exceptions. Meanwhile, Schedule 2 of the Delivering an Efficient and Trusted Tax System bill introduces stricter Tax File Number (TFN) reporting requirements for beneficiaries of closely held trusts. ([budget.gov.au](https://budget.gov.au/content/04-tax-reform.htm?utm_source=openai))
Trusts are capture-wide used for family wealth planning, asset protection, and business income splitting. Under the new regime:
- The **minimum 30% tax on discretionary trust distributions** means that high-earning beneficiaries can no longer rely on flowing income through trusts to achieve lower marginal tax rates. ([budget.gov.au](https://budget.gov.au/content/04-tax-reform.htm?utm_source=openai))
- **TFN Streamlining for closely held trusts** (Schedule 2) requires trustees to report beneficiary TFNs upon lodging trust tax returns. Beneficiaries remain quoted unless notified by the Commissioner that their TFN is incorrect. ([aph.gov.au](https://www.aph.gov.au/Parliamentary_Business/Bills_Legislation/bd/bd2526/26bd056?utm_source=openai))
## Impacts to Trust Owners & Advisors
| Issue | Before Reform | After Reform |
|---|---|---|
| Distributions to family members with lower incomes | Could be distributed to reduce overall family tax burden | Taxed at 30% unless beneficiary is a corporate or meets specific exception criteria ([budget.gov.au](https://budget.gov.au/content/04-tax-reform.htm?utm_source=openai)) |
| Beneficiaries who haven’t quoted a TFN | Could avoid withholding in some cases | Treated as not having quoted with withholding obligations potentially applying ([aph.gov.au](https://www.aph.gov.au/Parliamentary_Business/Bills_Legislation/bd/bd2526/26bd056?utm_source=openai)) |
| Trusts with poor trust deeds/structures | No regulatory minimum tax threshold | Higher risk of unexpected tax liabilities or compliance costs |
## What You Can Do Now: Checklist for Trust Restructuring
- **Review distributions**: consider aligning income distributions to beneficiaries who **qualify for exceptions**, like corporate beneficiaries, to avoid trigger of 30% minimum tax. |
- **Update trust deeds and governance** so that they reflect potential shifts in distribution strategy or structure. |
- **Ensure TFNs are collected and maintained** for all beneficiaries, especially those presently entitled. Not quoting can lead to adverse withholding. |
- **Prepare for transition relief**: there are rollover provisions for those restructuring trusts from 1 July 2027 to 30 June 2030. |
## Example Scenario
Imagine a discretionary family trust distributing income among three adult beneficiaries: one with a salary, one student, one retired. Under new rules the trustee may have to pay 30% tax on the shares given to the lower-earning individuals unless redistributed to a corporate beneficiary, or unless exceptions apply. This changes traditional income splitting strategies.
## Strategic Takeaways for Entity Setup
- When considering structure, compare **company structure vs trust vs hybrid**: company income taxed at corporate rate (30–25%), distributions via franked dividends; trusts taxed at 30% minimum unless beneficiary meets exceptions. |
- Use professional advice to **model your distributions**, considering cash flows, individual tax rates and family income. |
- Anticipate increased compliance: with newer reporting, record-keeping and possibly legal costs likely to rise.
Trust owners and advisors must act deliberately: these reforms aren’t just tweaks—they deserve a full strategy reset.