A 30% minimum tax on discretionary trust distributions has been announced for 1 July 2028, with the detail still to come.
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Every measure from the 2026-27 Federal Budget explained in one document, with practical guidance for your situation.
This article is based solely on the Budget announcement of 12 May 2026. No legislation has been released. All details are subject to change, and no planning decisions should be made on the basis of this announcement alone. For background on how trust structures differ, our comparison of family trusts and discretionary trusts is the right starting point.
What Has Been Announced
From 1 July 2028, trustees of discretionary trusts will be required to pay a minimum tax of 30% on the taxable income of the trust. Beneficiaries, other than corporate beneficiaries, will receive non-refundable credits for the tax paid by the trustee, similar in concept to franking credits on company dividends.
As with franking credits, if the credit exceeds a beneficiary’s actual tax liability, the excess is permanently lost. It cannot be refunded. This is the critical mechanism that drives the practical effect of the measure.
What This Means in Practice
Worked example: $20,000 distribution to a low-income beneficiary
A family member with no other income receives a $20,000 trust distribution. The tax outcome changes dramatically between old and new rules.
| Current rules | From 1 July 2028 | |
|---|---|---|
| Trustee tax (paid at 30% minimum) | $0 | $6,000 |
| Beneficiary tax liability | ~$288 | ~$288 |
| Non-refundable credit to beneficiary | n/a | $6,000 (capped at $288) |
| Excess credit permanently lost | n/a | $5,712 |
| Total tax paid on the $20,000 | ~$288 | $6,000 |
Total tax cost rises from $288 to $6,000 on the same distribution. That is the practical effect of the measure for low-income beneficiaries.
Where the Breakeven Point Sits
The breakeven point, where a beneficiary’s total tax liability equals the 30% minimum, falls at approximately $131,600 of income. Every beneficiary earning below that level results in some portion of the trust’s tax being unrecoverable.
| Beneficiary income (excluding distribution) | Marginal rate on distribution | Treatment under new rules |
|---|---|---|
| $0 – $18,200 | 0% | Maximum permanently lost |
| $18,201 – $45,000 | 16% – 18% | Significant loss |
| $45,001 – $135,000 | 30% – 32% | Approaching breakeven |
| $135,001+ | 37% – 47% | Beneficiary uses the full credit |
For trusts that have historically distributed to adult children studying, spouses with lower incomes, or family members with limited employment income, the new minimum tax materially reduces the after-tax benefit of those distributions. If your trust also holds property, our article on why buying property in a trust can destroy you covers a related set of considerations.
What Has Been Excluded
The announcement lists exclusions and structures that are not subject to the measure.
| Excluded income types | Excluded trust types |
|---|---|
| Primary production income | Fixed trusts |
| Income relating to vulnerable minors | Widely held trusts |
| Amounts subject to non-resident withholding tax | Complying superannuation funds |
| Income from assets of pre-existing testamentary trusts | Special disability trusts |
| Deceased estates | |
| Charitable trusts |
The targeting is on discretionary trusts specifically. The exclusions reflect a deliberate effort to keep the measure focused on income-splitting arrangements rather than legitimate trust uses.
What We Do Not Yet Know
Watch out
The Budget announcement raises far more questions than it answers, and the answers will only come with the legislation. The treatment of corporate beneficiaries is the most significant uncertainty. The announcement states that corporate beneficiaries will not receive the same credits that individual beneficiaries receive. It may mean corporate beneficiaries receive no credit at all, which would result in double taxation on income distributed to a company. No assumption should be made until the legislation is released.
Other uncertainties include the precise definition of each exclusion, the treatment of cross-border income flows, and how the measure interacts with existing family trust election rules.
The Rollover Relief Window
Key dates
- 12 May 2026 — Budget announcement
- Second half of 2026 — Draft legislation expected
- 1 July 2027 — Three-year rollover window opens for trust restructures
- 1 July 2028 — 30% minimum tax begins
- 30 June 2030 — Rollover window closes
The Budget confirms expanded rollover relief for three years from 1 July 2027, to support businesses and others wishing to restructure out of discretionary trusts into another entity type. This provides a meaningful window to act before the minimum tax takes effect.
What to Do Now
We cannot provide definitive advice on this measure yet. The legislation does not exist, and the consultation process has not begun. But early engagement will maximise your options when the detail does emerge.
- Identify which entities in your group are discretionary trusts and confirm the income flows through each one
- Map the beneficiaries and identify which ones are below the 30% effective rate
- Begin thinking about alternative structures that may better suit your situation under the new rules, without committing to anything yet
Please contact us so we can begin reviewing your trust arrangements through our business advisory service and be ready to act quickly once the detail is confirmed.
This article is part of our 2026-27 Federal Budget guide. Read the full overview for a summary of every measure announced on Budget night.
