Entity Setup
How Discretionary Trusts Will Be Taxed Under New Rules & What Trusts Should Do
Starting 1 July 2028, discretionary trusts face a new 30% minimum tax—trustees will pay, and beneficiaries get credits. Structural reforms demand early review of trust deeds.
By NomadicTax Research Team • 5-8 min read • June 4, 2026
## What’s Changing for Discretionary Trusts from 1 July 2028
- A **30% minimum tax** will apply to the taxable income of discretionary trusts (the trustee will pay it). ([budget.gov.au](https://budget.gov.au/content/factsheets/download/tax-explainers-minimum-tax-discretionary-trusts.pdf?utm_source=openai))
- Non-corporate beneficiaries will receive **non-refundable credits** for the tax already paid by the trustee; corporate beneficiaries won’t get the same credits. ([budget.gov.au](https://budget.gov.au/content/factsheets/download/tax-explainers-minimum-tax-discretionary-trusts.pdf?utm_source=openai))
- Some trusts are **excluded**: fixed and widely held trusts, complying super funds, special disability trusts, deceased estates, and charitable trusts. Certain income types (such as primary production) are also excluded. ([dlapiper.com](https://www.dlapiper.com/en/insights/publications/2026/05/australian-federal-tax-budget-2026-27?utm_source=openai))
- To help those who wish to restructure away from discretionary trusts, there’s **expanded rollover relief** from 1 July 2027 for three years. ([budget.gov.au](https://budget.gov.au/content/factsheets/download/tax-explainers-minimum-tax-discretionary-trusts.pdf?utm_source=openai))
## Why the Government is Making this Change
Discretionary trusts grew significantly, with many distributing income to beneficiaries with lower tax rates—an approach some viewed as unfair. The minimum tax aims to align trust income outcomes with those of wage earners on marginal rates around 30%. ([budget.gov.au](https://budget.gov.au/content/factsheets/download/tax-explainers-minimum-tax-discretionary-trusts.pdf?utm_source=openai))
## What Trusts Should Do: Structurally Prepare Now
### Review trust deed status
Check whether your trust qualifies as a “fixed” or “widely held” trust. Even if labelled “unit trust,” discretionary powers in the deed may disqualify fixed trust status. Deeds may need amendment *before 1 July 2028*. ([dlapiper.com](https://www.dlapiper.com/en/insights/publications/2026/05/australian-federal-tax-budget-2026-27?utm_source=openai))
### Plan distributions carefully
Under the new rules, the trustee pays minimum tax; beneficiaries get tax credits. Strategic distributions (corporate vs individual beneficiaries) may affect net tax. Beneficiaries might want to be payees earlier or adjust timing.
### Consider restructuring early
If most income is taxable at trustee-level with high minimum tax, converting to fixed trust or company may result in better outcomes. Use the three-year rollover relief window (from 1 July 2027) to shift without immediate income tax costs. ([budget.gov.au](https://budget.gov.au/content/factsheets/download/tax-explainers-minimum-tax-discretionary-trusts.pdf?utm_source=openai))
### Document everything now
To access grandfathering or favorable treatment, maintain clear records—asset acquisition dates, trust deed terms, any fixed vs discretionary powers, related-party transactions—because ATO’s future compliance scrutiny will focus here.
## Example
Let’s say you run a family discretionary trust:
- Current income: $200,000
- Distributions mostly to individual family members taxed at marginal rates of ~19–32%
Under the new rules, the trustee would pay 30% on the $200,000, and if beneficiaries are individuals, they receive non-refundable credits for that trustee tax. If distributing to corporations (at 30%), those “bucket” corporate beneficiaries won’t receive credits.
If the trust restructures to a fixed trust before 1 July 2028, it might avoid this minimum tax.
## Key Dates to Mind
- **12 May 2026, 7:30pm AEST** – pivotal timestamp: assets or properties acquired after this are particularly affected in CGT and negative gearing changes. ([treasury.gov.au](https://treasury.gov.au/policy-topics/taxation/budget2026-27?utm_source=openai))
- **1 July 2027** – date when capital gains reforms begin.
- **1 July 2028** – minimum tax on discretionary trusts takes effect.
- **1 July 2027 – 30 June 2030** – three-year window for rollover relief for trust restructuring. ([budget.gov.au](https://budget.gov.au/content/factsheets/download/tax-explainers-minimum-tax-discretionary-trusts.pdf?utm_source=openai))
## Bottom Line
Discretionary trusts are under a substantial tax reform. Trustees, beneficiaries and advisors need to audit trust deeds, consider restructuring, align distributions, and ensure compliance well before the 2028 start date. Early action matters to avoid unexpected tax bills.