Entity Setup
How the 2026–27 Budget’s Discretionary Trust Minimum Tax Could Affect Your Business Structure
From 1 July 2028, discretionary trusts in Australia will be subject to a 30% minimum tax. This change aims to reduce inequality in tax outcomes—but it also presents important restructuring considerations for business owners.
By NomadicTax Research Team • 5-8 min read • May 28, 2026
## What is the minimum tax on discretionary trusts?
The Australian Government in its 2026–27 Budget has proposed that **from 1 July 2028** discretionary trusts will face a **30% minimum tax** on the trust’s taxable income. This means that even when income is distributed to beneficiaries, the trustee must ensure at least 30% of the taxable income is paid in tax. Corporate beneficiaries get no credit—but other beneficiaries (non-corporate) will receive **non-refundable credits** for tax already paid by the trustee. ([budget.gov.au](https://budget.gov.au/content/04-tax-reform.htm?utm_source=openai))
Excluded from this measure are: primary production income from farms; income relating to vulnerable minors; amounts to which non-resident withholding tax applies; income of testamentary trusts in place at announcement; as well as other fixed, widely held, charitable or superannuation trusts. ([budget.gov.au](https://budget.gov.au/content/bp1/download/bp1_2026-27.pdf?utm_source=openai))
## Why is this reform being introduced?
The government estimates that the flexibility in discretionary trusts has led to **income splitting**—where high-wealth individuals distribute income to beneficiaries with lower marginal tax rates—and an **average tax rate of ~4% lower** for families using trusts, compared to those who don’t, with similar incomes. The measure is designed to better align tax outcomes with wage earners and reduce complexities that enable lower tax burdens. ([budget.gov.au](https://budget.gov.au/content/factsheets/download/tax-explainers-minimum-tax-discretionary-trusts.pdf?utm_source=openai))
## Restructuring implications and rollover relief
To ease the transition:
- From **1 July 2027**, expanded **rollover relief** will be available for three years so that some families, small businesses or entities can restructure out of discretionary trusts to companies or fixed trusts **without severe tax consequences**, including capital gains tax. ([budget.gov.au](https://budget.gov.au/content/bp1/download/bp1_2026-27.pdf?utm_source=openai))
- Small-businesses will receive support from the **Australian Small Business and Family Enterprise Ombudsman**, retaining access to tax reliefs such as small business company tax rate under certain structures. ASIC will also facilitate transitions. ([budget.gov.au](https://budget.gov.au/content/bp1/download/bp1_2026-27.pdf?utm_source=openai))
## Practical example
Suppose the **Smith Family Discretionary Trust** distributes $100,000 to beneficiaries who each pay tax at, say, 15%. Under the current system, beneficiaries might pay less tax collectively than if the income were earned via wages. But under minimum tax:
- Trustee must pay 30% ($30,000) on the taxable income before distributions.
- Beneficiaries still include their share in their individual returns; non-corporate beneficiaries get non-refundable credit for tax paid at trust level. If they owe more than the credit, they top up to their rate; if less, no refund.
## What you should do now
- Review structures: Are you currently using a discretionary trust to hold investment or business assets? Explore whether converting to a **fixed trust** or company structure might be more favorable.
- Assess timing: Since the measure takes effect **1 July 2028**, planning ahead gives you two full years to understand implications and act.
- Consult your accountant or lawyer to understand tax, legal, and administrative consequences of switching structures.
- Monitor detailed legislation: Rules on definitions (e.g., what makes a trust “discretionary”), exclusions, and how credits work could alter outcomes.
## Key take-aways
- A 30% minimum tax on discretionary trusts starts in **2028**, with rollover relief from mid-2027 to help transition.
- Not all trusts are affected—there are specific exclusions and some income types exempted.
- Business owners using discretionary trusts should re-evaluate their entity structure now to anticipate impacts on tax liability and flexibility.
If you'd like, I can run through another article about how the CGT reforms in the Budget 2026 affect property investors or digital nomads—both of which are seeing major changes.