Family Trust Tax Changes: What Has Changed—and What Should You Do Now?
Updated 19 October 2026
The 2026–27 Federal Budget proposed one of the most significant changes to the taxation of discretionary trusts in decades.
Since the Budget, the proposal has generated considerable commentary and concern—particularly among family businesses, investors and people using trusts for succession and estate planning. The Government has responded by revising parts of the original design and introducing additional options intended to reduce the need for restructuring.
However, an important distinction remains: the proposed minimum tax on discretionary trusts is not yet law. The relevant bills were introduced into Parliament on 14 October 2026 and may still change before they are passed.
Here is where the proposal currently stands.
What was originally announced?
The Government proposed that, from 1 July 2028, the trustee of an affected discretionary trust would pay tax at a minimum rate of 30% on the trust’s taxable income.
Beneficiaries would continue to declare their trust distributions. Non-corporate beneficiaries would receive a non-refundable tax offset for the tax paid by the trustee. If their applicable tax rate exceeded 30%, they could still have additional tax to pay. If their rate was below 30%, the excess credit would not be refunded.
Corporate beneficiaries would not receive the offset. This is one of the most controversial parts of the proposal because it may make distributions to “bucket companies” less effective and, depending on the final legislation and structure, create the potential for additional tax when funds are eventually paid to shareholders.
The Government argues that the measure will reduce income splitting and more closely align tax paid on discretionary trust income with tax paid by employees. Treasury says families using discretionary trusts paid an average tax rate approximately four percentage points lower in 2022–23 than comparable families without trusts. These figures and the Government’s explanation of the measure are contained in the Federal Budget minimum-tax explainer.
Trusts would not cease to exist, and their asset-protection, succession and commercial functions would not automatically disappear. The proposed change is principally about how income earned through certain discretionary trusts would be taxed.
What has been changed or walked back?
The central 30% minimum-tax proposal remains. What has changed is the range of exclusions and alternatives available.
Testamentary trusts received a conditional exemption
The original announcement caused concern that new discretionary testamentary trusts—commonly created through wills—would also be captured.
The Government subsequently announced an exclusion for trusts established for genuine testamentary purposes. Under the current design, the exclusion is limited to income generated by assets originating from the deceased estate. For relevant trusts established from 1 July 2028, access to the exclusion is also intended to depend on who is permitted to benefit.
This is a meaningful concession, but it does not mean every testamentary trust or existing will is automatically protected. Wills allowing distributions to companies, family trusts or other entities may require specialist review if the legislation passes in its current form.
Trusts may be able to elect into a fixed-distribution arrangement
A significant addition is the proposed Excluded Election Trust, or EET, option.
Instead of restructuring the trust or accepting the minimum tax, a trustee may be able to nominate beneficiaries and their distribution proportions in advance. While the trust continues to distribute income according to that nomination, it would be exempt from the 30% minimum tax.
This could preserve the existing trust structure, but at the cost of much of the annual distribution flexibility that makes a discretionary trust attractive in the first place.
It is not a simple universal solution. Families would need to consider future changes in income, family circumstances, business ownership and succession before making a long-term election.
The Treasurer outlined this election and the other changes when introducing the legislation. The details can be read in the official second-reading speech.
Restructuring relief has been retained and expanded
For those who choose to move assets from a discretionary trust into a company, fixed trust or another structure, expanded income-tax rollover relief is proposed for three years from 1 July 2027.
The relief may defer or remove some immediate income-tax and capital-gains-tax consequences of restructuring. It does not necessarily eliminate:
Legal and accounting expenses
Loan refinancing and lender consent requirements
Contract and license changes
Asset-protection consequences
State or territory duty
Longer-term tax consequences
The Government says the new election should not generally produce state or territory stamp duty because it does not require assets to be transferred. Actual duty consequences will depend on the arrangement and the relevant jurisdiction.
The current Government summary of the minimum tax and proposed rollover relief is available on the Treasury’s 2026–27 Budget tax changes page.
Additional exemptions have been confirmed
Under the legislation introduced in October, the minimum tax would not apply to several categories, including:
Fixed trusts
Charitable trusts
Complying superannuation funds
Special disability trusts
Deceased estates
Genuine discretionary testamentary trusts, subject to conditions
Primary-production income
Certain income relating to vulnerable minors
Distributions to registered charities and deductible gift recipients would also be exempt. Limited exemptions are proposed for distributions to other tax-exempt organisations, including sporting and community groups.
These exclusions were confirmed when the Government introduced the bills on 14 October 2026 and are summarised in the Treasurer’s second-reading speech.
Why are businesses still concerned?
Despite these changes, professional and business groups argue that significant issues remain.
A business operating through a trust may face three broad choices:
Remain under the existing discretionary model and accept the minimum 30% tax.
Make an EET election and give up some distribution flexibility.
Restructure into another entity and accept the financial, legal and administrative consequences.
Concern is particularly acute where several trusts, companies and family members are connected. A choice that appears beneficial for one entity may create adverse consequences elsewhere in the group.
The treatment of corporate beneficiaries also remains contentious. Because a company would not receive the tax offset available to an individual beneficiary, existing trust-and-company arrangements will need detailed modelling if the bill passes.
These concerns do not prove that every trust will pay more tax. Treasury estimates that around half of discretionary trusts will not be financially affected in a given year, particularly where income is already distributed to people paying tax at 30% or more. The result will depend on the trust’s income, beneficiaries and wider structure.
A more detailed professional analysis of the legislation and the outstanding concerns is available in Grant Thornton’s minimum-tax legislation update.
How does this fit with the wider Budget tax reforms?
The trust proposal is one part of a broader tax package.
Separate reforms have already progressed through Parliament, including changes that will:
Limit negative gearing on future purchases of established residential property from 1 July 2027, while protecting properties held before Budget night
Replace the general 50% capital-gains-tax discount with inflation-based treatment and a minimum tax on applicable gains from 1 July 2027
Preserve alternative treatment for qualifying new residential construction
Provide additional concessions in areas including small-business assets, innovative businesses and deductible charitable giving
The exact interaction between these measures, trusts, property ownership and succession arrangements can be complex. A decision about one part of the structure should not be made without considering the others.
What should trust owners do now?
The appropriate response is review, model and prepare—not rush to restructure.
If you operate a business, hold investments or have estate-planning arrangements involving a discretionary trust, useful steps include:
Confirming exactly which assets, income and liabilities sit within each entity
Reviewing current and likely future beneficiaries
Identifying distributions made to companies or other trusts
Checking wills and testamentary-trust provisions
Modelling the proposed 30% minimum tax against the EET and restructuring alternatives
Considering asset protection, succession, finance and estate planning—not tax alone
Coordinating advice between your accountant, solicitor and financial adviser
The bills remain before Parliament, and their final form is not yet certain. Restructuring prematurely could generate costs and unintended consequences without producing a lasting benefit.
The proposal is significant, but it does not mean every trust is suddenly unsuitable. The real question is whether your structure will continue to support your family, business and investment objectives under the final rules.
Understanding how proposed trust tax changes could affect your broader financial position is an important part of long-term wealth planning.
At Schuh Wealth Advisers, we work with individuals, families and business owners across Noosa, Gympie and beyond to consider how their financial structures support their investment, retirement and succession goals.
Speak with our team about reviewing your broader wealth strategy alongside your tax and legal advisers.
This article contains general information only and does not take into account your objectives, financial situation or needs. Tax and legal outcomes depend on individual circumstances. Obtain appropriate financial, tax and legal advice before changing an existing trust, investment, business or estate-planning structure.
