350,000 Businesses Run Through a Trust: A New Option Skips the Restructure

Treasury released draft legislation for the 30 per cent minimum tax on discretionary trusts on 3 September, and it carries something the Budget announcement did not. A discretionary trust can now be exempt from the tax without restructuring at all.

The measure was announced on 12 May in the 2026-27 Budget and starts on 1 July 2028. It is not yet law. The tax is paid by the trustee at 30 per cent on the trust's taxable income, and non-corporate beneficiaries receive a non-refundable credit for what the trustee has already paid. Around 350,000 active small businesses operate through a discretionary trust, on the Budget's own figures. Until this week their choices were to wear the tax or to move the business into a company or a fixed trust.

The third option is an election, not a restructure

Under the draft, a discretionary trust can be exempt if it elects to make fixed distributions to pre-nominated beneficiaries. The Treasurer's announcement is explicit that the election would not require a restructure and is not expected to result in state and territory stamp duties.

That second point matters. Stamp duty on moving assets out of a trust is charged by each state and territory, sits outside the Commonwealth's rollover relief, and is usually what stops a small restructure before the paperwork starts. An option that leaves the trust deed alone changes the arithmetic for anyone who had written off restructuring as too expensive.

What it costs is discretion. A discretionary trust exists so the trustee can decide each year who gets what, and fixing the shares in advance gives that up.

The rest of the draft

Rollover relief has not gone away and has been expanded. It runs for three years from 1 July 2027 and removes the income tax consequences, including capital gains tax, of moving assets out of a discretionary trust into something that is not one. A new definition of fixed trusts keeps widely held trusts, managed investment trusts, bare trusts and employee share trusts outside the measure. Charitable trusts, special disability trusts, superannuation funds, deceased estates, discretionary testamentary trusts established for genuine testamentary purposes, primary production income and certain income relating to vulnerable minors stay excluded.

What to do

Start with the arithmetic, not the structure. A trust already distributing to non-corporate beneficiaries who pay 30 per cent or more sees no overall increase in tax. Pull last year's distribution resolution and put each beneficiary's marginal rate next to their share. If they all sit at or above 30 per cent, this is a reporting change rather than a cost. The Budget papers put around 140,000 of those 350,000 businesses in that position in any given year.

If the low-rate names on that list are family members who work in the business, the Budget papers point somewhere that is not a structure change: pay them wages. Salary and wages to employees do not attract the minimum tax. That turns a tax question into a payroll one: PAYG withholding each cycle, superannuation paid on time, and an award classification that stands up. It also changes when money leaves the business, monthly rather than once a year, which is worth modelling first.

Test the fixed-distribution election against a bad year, not an average one. Fixed shares to named beneficiaries are simple while circumstances hold still. Ask what it looks like when a beneficiary starts earning, a relationship ends, or the trust makes a loss. If you would want to change the split, you are trading away something you use.

Then read the calendar rather than the start date. Rollover relief opens on 1 July 2027, a year before the tax applies, and stays open for three years. From 1 January 2027 the Australian Small Business and Family Enterprise Ombudsman is to help small businesses work through the options, and ASIC is to put arrangements in place for those that decide to incorporate. Consultation closes on 18 September and further tranches are to follow, so the detail can still move. Nothing here needs a decision this month, but it does need the numbers in front of you.

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