If you run your business or investments through a family trust, it’s important to understand some proposed changes to how trust income is taxed. As part of the 2026–27 Federal Budget, from 1 July 2028, the Australian Government plans to introduce a minimum 30% tax on income earned through most family trusts, also known as discretionary trusts.
The changes aren’t law yet. Treasury released draft legislation on 3 September 2026, and the first bill was introduced into Parliament on 14 October 2026, giving us a clearer picture of how the rules could work. Here’s what the proposal means for businesses, what’s changed since the Budget, and what you should consider doing now.
The basics: how the 30% minimum family trust tax works
The trustee pays 30% on the trust’s taxable income. When that income is distributed to individual beneficiaries, they receive a tax credit for the 30% already paid. This credit reduces their personal tax bill, preventing the same income from being taxed twice.
Here’s what the changes mean in practice:
- The tax credit is non-refundable. It can reduce a beneficiary’s tax bill to zero, but they won’t receive any unused credit back. This means someone on a low income could effectively pay 30% tax on their share of the trust’s income, even if their usual tax rate is lower.
- Companies get no credit at all. If a trust distributes income to a company (often called a bucket company), the company can’t claim a credit for the trust’s 30% tax. The company may then have to pay its own tax on that income, making this arrangement less tax-effective under the proposed rules.
- Franking credits stay at the trust. These credits help prevent company profits from being taxed twice. Under the proposed rules, they’re used to cover the trust’s tax first, rather than being passed on to beneficiaries to reduce their personal tax bills.
- Undistributed income is still taxed at 47%. If the trustee doesn’t distribute the trust’s income to beneficiaries, the existing top tax rate of 47% generally still applies.
In short, the proposed changes aim to ensure that trust income is taxed at a minimum of 30%, limiting the tax savings available from distributing income to lower-income family members or companies. Beneficiaries whose personal tax rate is already above 30% may have less change to their overall tax position, but the outcome will depend on their circumstances.
What the September draft legislation adds
On 3 September 2026, Treasury released four draft bills, with consultation closing on 18 September. The proposed 30% minimum tax on family trusts hasn’t changed, but the draft explains how the rules would work and introduces some new options for affected trusts.
A new way to opt out
The biggest change is an option for existing family trusts to avoid the 30% minimum tax without restructuring.
A trust that exists on 1 July 2028 can choose to lock in a fixed percentage of income and capital for each beneficiary. This means the trust can avoid the minimum tax, but it must follow the agreed percentages. The Treasurer has said the election doesn’t require a restructure and isn’t expected to trigger state stamp duty.
However, the trade-off is less flexibility. The choice can only be made once, for the 2028–29 year, and the percentages can generally only change if a beneficiary dies or a relationship breaks down.
If the trust distributes income or capital in a way that doesn’t follow the agreed percentages, the election is cancelled. The trustee must then pay 47% tax on all the trust’s income for that year. The bill gives the Commissioner a discretion to keep the election in place where it was broken by a genuine mistake, but trustees shouldn’t rely on that. In effect, it turns a discretionary trust into a fixed one.
A broader definition of ‘fixed unit trust’
Fixed unit trusts are excluded from the proposed rules. The draft broadens the definition to include trusts that don’t have significant powers to make discretionary decisions about how income or capital is distributed.
This could help more unit trusts qualify for the exemption from the proposed family trust 30% tax. However, the rules look at what the trust deed allows, not just what the trustee actually does. Trust deeds will need to be checked to confirm whether they qualify.
Restructure relief, with strings attached
Between 1 July 2027 and 30 June 2030, a discretionary trust could transfer its assets to a company or fixed unit trust without triggering capital gains tax (CGT). This could give trusts a way to restructure their business or investments without facing a CGT bill on the transfer.
There are conditions. Generally, all of the trust’s assets must be transferred to a single new entity by 30 June 2030. GST may still apply, and a trust can’t use this option and the new opt-out election.
With the proposed bills, stamp duty is the biggest unknown. It’s set by state governments, and they haven’t committed to offering exemptions for these changes. Queensland and NSW are reportedly still considering their position. Without relief, moving property or business assets out of a trust could carry a significant duty bill. For some businesses, these costs could make restructuring too costly to be worthwhile.
Other exclusions and changes
The bill excludes genuine testamentary trusts (created under a will), deceased estates, charitable trusts, special disability trusts, certain income of vulnerable minors and income from primary production. Distributions to charities and deductible gift recipients are also exempt.
Trustees can also claim a refund for excess franking credits. However, these credits can no longer be passed on to beneficiaries to reduce their personal tax bills.
What are the concerns
Most welcome the opt-out election and the changes to fixed unit trusts. However, the main concerns raised after the Budget haven’t gone away, with potential impacts for families, businesses and their advisers.
- Lower-income beneficiaries may not get the full tax benefit. The NTAA estimates a beneficiary would need taxable income of around $229,000 to use the full credit, where the trust distribution is their only income.
- Some retirees and low-income beneficiaries could lose franking credit refunds. Under the proposed rules, excess franking credits held by a trust would no longer pass through to beneficiaries, potentially reducing their after-tax income.
- Tax losses could become harder to use. Businesses operating through different entities within a family group may have fewer options to make use of losses across the group, potentially increasing the overall tax they pay.
- The election raises legal questions. Locking in each beneficiary’s share of income and capital could affect how a trust operates, including its asset protection arrangements. Other legal questions also remain, so families may need specialist advice before making a decision.
- Restructuring could come with a significant price tag. CPA Australia and Wilson Asset Management estimate $8 billion to $13.3 billion in costs nationally, before stamp duty.
Politically, the Greens argue the opt-out election is generous on trusts, while the Coalition opposes the measure entirely.
How the proposed rules could affect your trust
The proposed changes won’t affect everyone in the same way. It largely comes down to who receives the income from your family trust.
| Who receives the income? | Likely impact from 1 July 2028 |
| Bucket company | Worst hit. The trust pays 30% tax, and the company may pay tax on the same income again, with no credit to offset the tax already paid. |
| Low-income family members (spouse, adult kids, retirees) | Worse off. They may pay 30% tax instead of their usual lower rate. They may also be unable to use the full tax credit. |
| Beneficiaries with tax losses | Worse off. Tax losses may no longer reduce trust income the way they do now. |
| Beneficiaries on high incomes from other sources | Largely unaffected. They may have enough taxable income to use the full tax credit, reducing the impact of the minimum tax. |
| Primary production income | Excluded from the proposed rules. |
| Wages paid by the business | Outside the proposed rules. Genuine wages for work performed are treated as employment income, rather than trust distributions. The wage must be reasonable for the work actually done. |
One point that often gets missed: a beneficiary on a high marginal rate isn’t automatically safe. If the distribution is their main income, it fills the low tax brackets first. Their average rate ends up under 30%, and the unused credit is lost.
That’s why genuine wages matter. A real wage, at a reasonable rate for work actually done, sits outside the minimum tax and fills those lower brackets, so any distribution on top is more likely to use the full credit.
Where things stand and what’s next
The first bill, the Treasury Laws Amendment (Tax Reform No. 3) Bill 2026, was introduced into Parliament on 14 October 2026. It largely follows the September draft, with the refinements covered above. However, it may take time to become law. The Greens want a Senate inquiry into the opt-out election, while the Coalition opposes the proposal. This means the rules may not be finalised until late 2026, and more likely into 2027.
Key dates
| Date | Milestone |
| 12 May 2026 | Budget announcement |
| 8 July 2026 | Treasury consultation paper |
| 3 September 2026 | Exposure draft legislation released |
| 14 October 2026 | First bill introduced into Parliament |
| 1 July 2027 to 30 June 2030 | Roll-over (restructure) relief window |
| 1 July 2028 | The proposed 30% minimum tax is due to start |
| 2028–29 income year | One-off opt-out election must be made by eligible trusts |
The September draft doesn’t cover everything. More details are expected on areas such as tax residency, CGT, how the tax will be collected, Division 7A rules and measures to prevent tax avoidance.
Further rules and guidance from the government are also still to come. The final legislation may differ from the current draft, so the details could change before the rules become law.
What you should do now
Our view: don’t rush into restructuring yet, but don’t ignore the changes either.
The law isn’t final yet, some details are still to come, and the option to restructure without triggering CGT won’t be available until July 2027. Making changes now could mean spending money on a solution that needs to change again later.
However, it’s worth starting to understand your options.
Every family trust is different. The right option will depend on who receives the income, what the trust owns and your plans for the future. Restructuring might make sense for one family but cost another more than it’s worth. For some, keeping the trust as it is and paying the minimum tax may be the better option.
In general, the proposed changes are worth looking at if you run a business through a family trust or hold shares, property or other investments in one.
You may be more affected if your trust:
- Distributes income to a bucket company.
- Distributes income to lower-income family members, including retirees.
- Receives franked dividends that currently generate tax refunds.
- Has beneficiaries or related entities with tax losses.
If any of these apply to you, or you’re unsure how the changes could affect your trust, get in touch with us.
Our team works with family groups across Brisbane. We’re keeping track of the proposed changes and will keep our trust clients informed as more details become available.
Family trust tax changes: quick answers
When does the 30% minimum tax on family trusts start?
It’s proposed to apply from 1 July 2028, the 2028–29 income year. Restructure relief opens earlier, on 1 July 2027.
Is the trust tax law yet?
No. The first bill was introduced into Parliament on 14 October 2026 and is likely to go to a Senate inquiry, so it may change before it passes.
Do I need to restructure my family trust?
Not yet, and possibly not at all. Depending on your situation, staying as you are, making the opt-out election or restructuring could each be the right answer.
Will stamp duty apply if I restructure?
Possibly. The federal relief covers CGT, but stamp duty is set by each state. No state, including Queensland, has committed to duty concessions yet. The Treasurer has said the opt-out election isn’t expected to trigger stamp duty.
Are bucket companies still worth it?
Under the proposal, largely no. Income sent from a family trust to a company would be taxed twice, with no credit for the tax the trust has already paid.
Sources
- Treasurer’s media release, 3 September 2026
- BDO: what the exposure draft means for taxpayers
- NTAA via Accountants Daily: the draft law lands, and the concerns remain
- Accountants Daily: state pushback likely on trust tax stamp duty
- The Money Edition: business to fight trust tax changes
- Treasurer’s second reading speech, 14 October 2026
- Accountants Daily: government introduces trust tax bill
This article provides general information only. It doesn’t take your specific business circumstances into account. The measures are proposed and may change before becoming law.
