840,000 Family Trusts Just Got a 30% Tax Floor

The federal budget introduced a 30% minimum tax on discretionary trusts from 1 July 2028. It affects around 840,000 trusts across Australia. And the people who feel it most won't be high-wealth families. It will be small business owners.

Why the change

The number of discretionary trusts in Australia has more than doubled in 20 years. In 2022-23, families using trusts paid an average tax rate roughly four percentage points lower than families on similar incomes without one. Treasury estimates the measure will raise $4.47 billion by 2030. The government framed it as fairness: closing the gap between how trust income and wages are taxed.

How it works

From 1 July 2028, the trustee of every in-scope discretionary trust pays 30% tax on the trust's taxable income before distributions reach beneficiaries. Individual beneficiaries get a non-refundable credit for the tax already paid. If your marginal rate is above 30%, you pay the difference as normal. If it's below 30%, the excess is gone. You don't get it back.

That is the critical point. The core advantage of a family trust has been distributing income to family members in lower tax brackets: a non-working spouse, an adult child studying, a retired parent. Under the new rules, distributing $50,000 to someone earning nothing still attracts $15,000 in trustee-level tax. The credit is non-refundable, so the beneficiary cannot reclaim it. The effective rate on that distribution becomes 30%, not the 0-19% they would pay on the same amount as wages.

For anyone already above the 30% bracket (roughly $45,000 or more in taxable income), the minimum tax changes nothing. The credit offsets the trustee payment and your normal marginal rate applies. This is why the measure hits small business families harder than the wealthy. High-income earners were already paying above 30% on their distributions. The people who lose are the ones distributing to lower-income family members to manage the household tax bill.

Bucket companies are finished

The budget also closed the "bucket company" strategy. Corporate beneficiaries receive no credit at all for the 30% trustee-level tax. Income flowing from a trust to a company now faces effective rates above 50%. That planning tool is dead.

What to do

Start with the threshold question. If every beneficiary in your family already earns above $45,000, the minimum tax may not change your position at all. If you rely on distributing to low-income family members, run the numbers on what a locked-in 30% floor actually costs your household each year.

Primary production income is exempt. Salary and wages paid to family members as genuine employees of the business are also exempt. If your family members work in the business and are paid at market rates, that pathway stays intact.

The rollover relief window opens 1 July 2027 and closes 30 June 2030. During that period, you can restructure from a discretionary trust into a company or fixed trust without triggering capital gains tax. But the rollover does not cover state stamp duty. If your trust holds property, plant, or equipment, the stamp duty on transferring those assets could cost more than the extra tax. For land-rich businesses, the restructuring maths may not stack up.

Compare the structures. A base rate entity company pays 25%. The new trust floor is 30%. That is a five-point gap, and it matters over time. But moving to a company means Division 7A rules on any money you draw out, and you lose the flexibility that made the trust useful in the first place. There is no clean answer here. It depends on your asset base, your family structure, and how you use the trust.

The legislation has not been drafted yet. Key design questions remain, including how the minimum tax interacts with franking credits and multi-layered trust structures. Do not restructure before the rules are finalised. But do not wait until 2028 to start planning, either.

This article is general information only and is not financial advice.