2026 Budget: 30% Minimum Tax on Discretionary Trusts

Have a discretionary trust? Or run a small business through one? Or distribute income to a non-working spouse, adult kids studying, or a parent helping out? Then this Budget measure is for you.

The 2026-27 Federal Budget proposed a 30% minimum tax on the taxable income of discretionary trusts from 1 July 2028. It’s announced. It’s not yet law. The Government has flagged that consultation will deal with key design questions. But the direction is clear, and we think it deserves serious attention, planning lead time, and (in many cases) restructuring before the rules bite.

This article walks through what the proposed measure actually does, who’s caught and who isn’t, why it’ll hurt ordinary small business families more than the headline pitch suggests, and what your realistic options are.

If you haven’t already, read our flagship article on the 2026 Budget tax changes for Australian expats first. This one picks up where that one left off, and goes deeper on the trust measure specifically.

Table of Contents

1. Our Honest Take Before We Start
2. A Quick Recap: What a Discretionary Trust Actually Does
3. What’s Actually Proposed (And When)
4. Who’s Caught, Who Isn’t
5. The Direct Strike at the Bucket Company Strategy
6. Who This Actually Hits (Spoiler: Not Just Wealthy Tax Planners)
7. Worked Example 1: The Trades Business Family
8. Worked Example 2: The Investment Trust With Adult Children
9. Worked Example 3: The Bucket Company Group
10. The Franking Credit Trap Nobody’s Talking About
11. What This Means For Australian Expats
12. The Three-Year Restructure Rollover Relief Window
13. The Stamp Duty Trap
14. A Legitimate Alternative: Restructure to a Company With Different Classes of Shares
15. Other Restructure Options Worth Considering
16. Planning Levers for Discretionary Trust Owners
17. Right, So What Now?
18. Important Notes

Right. Coffee, pen, ridiculously strong patience for legislative ambiguity. Let’s go.

Our Honest Take Before We Start

This article is intentionally direct. The trust measure is technical, but the consequences are not academic. The measure touches a very large part of Australia’s private wealth system. Australia now has over one million trusts, including around 840,000 discretionary trusts (Source: Budget 2026-27 Fact Sheet, Minimum Tax on Discretionary Trusts). That isn’t a niche corner of the tax system. That’s the family business, investment and estate-planning machinery of a substantial part of the country. The measure affects small business families, returning expats, returning retirees, and anyone who has been told for years that “the family trust is the answer” by an adviser who hasn’t yet updated their PowerPoint deck.

We don’t think this measure is well targeted. Here’s why.

The Government’s pitch is that discretionary trusts have been used by high earners to split income to low-rate family members. That happens. We don’t pretend it doesn’t.

What the Government isn’t saying, and we will, is that the same structure is used by ordinary small business families for entirely legitimate reasons. The husband-and-wife trades business. The cafe owner whose adult kids work shifts. The single-parent operator whose parent helps with the books. The trust distribution to a non-working spouse running the household and the bookkeeping, which historically came in under the tax-free threshold and supported a single-income family on a single trade wage. From 1 July 2028, that distribution gets hit with a 30% minimum tax floor, regardless of the recipient’s actual marginal rate. For a family on a single trade income, the difference is a real cash hit. Multiple thousands of dollars a year. Two months of childcare. Or a year of rates, rego and insurance.

The Government’s stated objective is “fairness”. On a numeric basis, the measure raises an estimated $4.5 billion over five years from 2025-26 (Source: SmartCompany, “Budget 2026: New 30% minimum tax rate for discretionary trusts in push for ‘fairness'”, 13 May 2026). The Budget materials say around 350,000 active small businesses operate through discretionary trusts, and that 40% of those are not expected to pay additional tax or need to restructure in any given year (Source: Budget 2026-27 Fact Sheet, Minimum Tax on Discretionary Trusts). Which leaves a large remaining cohort that may need to change behaviour, restructure, or wear higher tax cost. That isn’t a rounding error. That’s a structural shove.

We think the measure also misses a more basic point. The 30% minimum tax doesn’t apply to companies. It doesn’t apply to fixed trusts. It doesn’t apply to widely-held trusts. So the practical effect is to push families either out of discretionary trusts entirely or into structures (like companies with carefully designed share classes) that achieve broadly the same outcomes through different mechanics. Whether that’s the policy intent is for others to decide. The compliance cost on ordinary families restructuring out of discretionary trusts will be real, and it will not be cheap.

For Australian expats, the trust measure has an additional wrinkle. Many expat clients use discretionary trusts to hold Australian assets while overseas, distribute income to Australian-resident beneficiaries, or as part of pre-departure or pre-return planning. The 30% minimum tax changes the calculation on all of those.

Right. That’s our honest take. Now let’s walk through what’s actually proposed, who it hits, who it doesn’t, and what your realistic options are.

A Quick Recap: What a Discretionary Trust Actually Does

For readers who’ve heard the term but never had it properly explained, here’s the short version.

A discretionary trust is a structure where a trustee holds assets on behalf of a class of beneficiaries (usually family members and entities associated with them). At the end of each financial year, the trustee decides who in that beneficiary class gets what share of the trust’s taxable income. The income then “flows through” to those beneficiaries, who include their share in their personal tax returns and pay tax at their own marginal rates.

The flexibility is the point. If one family member has a lower marginal rate than another in a particular year, the trustee can distribute more income to them. Income can be split across family members, retired parents, adult children at university, or a corporate beneficiary (a “bucket company”) that pays a flat company rate.

This flexibility is what the Government has decided to constrain.

What’s Actually Proposed (And When)

From 1 July 2028, trustees of discretionary trusts will pay a minimum 30% tax on the trust’s taxable income at the trustee level. This is a fundamental change in approach. Historically, discretionary trusts have been treated as flow-through vehicles, with the tax applied at the beneficiary level. The new measure flips that to a trustee-level minimum.

Non-corporate beneficiaries will receive non-refundable credits for the tax paid by the trustee.

That word, “non-refundable”, does a lot of heavy lifting.

If the beneficiary’s marginal rate is at or above 30%, the credit reduces their tax bill by the amount of trustee tax paid. They might owe a little more top-up tax, or nothing further, depending on their precise rate.

If the beneficiary’s marginal rate is below 30% (think: the non-working spouse, the adult child studying, the retired parent on a small pension), the credit will only reduce their tax to nil. The excess credit (the bit above what the beneficiary would otherwise have owed) is lost.

In plain English: distributing trust income to a low-marginal-rate beneficiary will no longer produce the tax saving it currently does.

The Government’s framing: the minimum 30% rate matches the marginal tax rate that applies to wages between $45,001 and $135,000 for individual workers. The argument is that trust income should be taxed at the same minimum rate as a salary in that band (Source: Pitcher Partners, “Federal Budget 2026-27: Minimum tax on discretionary trusts”, 13 May 2026).

The measure is announced but not yet law. The Government has indicated consultation will deal with several design questions, including how the tax interacts with franking credits, how corporate beneficiaries are treated, and the scope of the proposed rollover relief (Source: Budget Paper No. 2, page 22; Budget 2026-27 Fact Sheet, Minimum Tax on Discretionary Trusts).

Who’s Caught, Who Isn’t

The measure applies to discretionary trusts. The term “discretionary trust” has no settled statutory definition in the income tax legislation, which has caused some commentators to flag that the actual scope of the measure will depend on how that line gets drawn in the legislation (Source: Mallesons, “Australian Federal Budget 2026-27: Funds/Trusts”, May 2026). For practical purposes, if your trust gives the trustee discretion to choose who gets what, you should plan for the measure to apply.

Excluded entities (which won’t be subject to the minimum tax):

• Fixed trusts (where beneficiaries have a defined, fixed interest in income or capital)
• Widely held trusts, including fixed testamentary trusts
• Complying superannuation funds (including SMSFs)
• Special disability trusts
• Deceased estates
• Charitable trusts

Excluded categories of income:

• Primary production income
• Certain income derived by vulnerable minors
• Amounts already subject to non-resident withholding tax
• Income from assets of discretionary testamentary trusts existing at announcement

On testamentary trusts specifically, the Budget materials indicate that income from assets of testamentary trusts existing at announcement (12 May 2026) will be excluded. That isn’t the same thing as a blanket exclusion for every testamentary trust forever. The treatment of testamentary trusts established after Budget night, and the treatment of later-acquired assets within existing testamentary trusts, will need to be confirmed once the legislation is released. Treat the exclusion as narrow rather than absolute, and plan accordingly.
The primary production carve-out is notable. Farming families running their operations through discretionary trusts retain the existing concessional treatment for genuine primary production income. Non-primary-production income earned through the same trust (rental from a farm cottage, for example) doesn’t get the carve-out.

The non-resident withholding tax carve-out is particularly relevant for expat families. If a discretionary trust has a foreign-resident beneficiary, and the distribution to that beneficiary is already subject to non-resident withholding tax, the new minimum tax is not expected to stack on top. That makes sense as a design principle. It also means the actual outcome for expat families with Australian trusts will depend heavily on the character of the income and the residency status of each beneficiary in the relevant year.

For ordinary family discretionary trusts, there is no broad grandfathering. Existing trusts don’t get to keep the old rules merely because they were set up years ago, often on advice that was perfectly sensible at the time. From 1 July 2028, in-scope discretionary trusts are expected to be pulled into the new regime, regardless of when the trust was established. The main announced carve-out is for income from assets of discretionary testamentary trusts existing at announcement. That’s narrow. It’s not a free pass for the family trust sector (Source: William Buck, “Federal Budget Analysis 2026: Trusts”, May 2026).

The Direct Strike at the Bucket Company Strategy

Now we get to one of the sharpest design choices in the measure.

Under the existing rules, a “bucket company” (a corporate beneficiary of a family trust, often owned by other family entities) can receive a trust distribution, pay tax at the company tax rate (25% for base-rate entities, 30% otherwise), and have the after-tax profit sit in the company until the family chooses to pay it out as a franked dividend at a future date. The franking credits attached to that future dividend are refundable, meaning low-marginal-rate shareholders can receive a tax refund of the excess credit. The result is a cap on the immediate tax rate at the corporate rate and a flexible deferral of any top-up tax.

That strategy is being directly targeted.

Under the proposed measure, corporate beneficiaries will not receive non-refundable credits for tax paid by the trustee. The stated reason is to prevent corporate beneficiaries from converting trustee-level credits into refundable franking credits that could then be used to undo the minimum tax (Source: Baker McKenzie, “Australia: Budget Bites, Taxation of Discretionary Trusts”, May 2026).

In simple terms: a trust distribution to a bucket company would attract the 30% trustee-level tax, the bucket company would receive no credit for that, and the after-tax distribution (or the dividend paid to its shareholders later) could face another layer of tax. That’s not a footnote. That’s a direct strike at the traditional bucket company strategy for absorbing discretionary trust income.

Bucket companies may still have commercial, asset protection, deferral or reinvestment uses for some clients. But their tax effectiveness for absorbing discretionary trust income would be significantly reduced.

Who This Actually Hits (Spoiler: Not Just Wealthy Tax Planners)

The political pitch on the trust measure is that it targets the wealthy. The actual mechanics suggest something different.

Meet four families whose tax outcome just got worse. Tell us how many of them you would describe as wealthy tax planners.

First, the trades business family. Husband runs an electrical or plumbing business through a discretionary trust. Wife stays home with two small kids, handles the bookkeeping and chases the invoices that have been unpaid for three months too long. The business produces $120,000 of taxable trust income after expenses. Historically, the trustee distributes $80,000 to the husband (who pays tax at marginal rates) and $20,000 each to the wife and an adult child who’s an apprentice or in a low-paid first job. From 1 July 2028, those $20,000 distributions each get hit with a 30% minimum tax floor. Where the wife and the adult child were paying very little tax on those amounts, they each now bear $6,000 of trustee-level tax with most of the credit wasted. A $12,000 hit to a family on a single trade income is real.

Second, the small business with retired parents helping out. Cafe owner runs the business through a discretionary trust. The cafe owner’s mum helps with paperwork two days a week. She’s 72 and lives off the Age Pension plus some super income. The trust historically distributes $25,000 a year to her, which falls below her effective tax-free threshold once you factor in the seniors and pensioners tax offset and other concessions. From 1 July 2028, that $25,000 distribution attracts the trustee-level 30% tax. $7,500 of tax on income that previously produced little or no tax in her hands. Whether the unused credit can be applied against her other income or is simply lost (because she has nothing else to apply it to) is going to depend on the final legislation. Either way, the family that used the trust to legitimately spread income to a family member who genuinely worked in the business is materially worse off.

Third, the investment family with adult children at uni. Mum and dad set up an investment trust 15 years ago. The trust earns roughly $40,000 a year in dividends, interest and net capital gains, mostly from a portfolio of Australian shares. Historically the trustee distributes $20,000 each to two adult children studying at university (earning small amounts from part-time work, each below the tax-free threshold). The kids paid little or no tax on these distributions and used them to cover rent, fees and living costs. From 1 July 2028, that $40,000 attracts 30% trustee-level tax of $12,000. The kids each get a $6,000 non-refundable credit, most of which will be wasted because they have little other tax to offset. Family is materially worse off, while the kids are still on their original modest part-time incomes.

Fourth, the returning expat with a long-held family trust. Australian client returned from Singapore three years ago. Has a long-running family discretionary trust with $80,000 a year of net rental, dividend and small business income. Has distributed across spouse, parents and a bucket company over the years. From 1 July 2028, the bucket company strategy stops working effectively. Distributions to low-rate family members produce wasted credits. The family is staring at a meaningful restructure, possibly involving sale or transfer of underlying assets, with all the duty and CGT implications that come with that, even with the rollover relief on offer.

If the Government’s stated target is wealthy tax planners, the four families above are exactly the wrong targets. We’re not making a political argument. We’re making an arithmetic one.

Important caveat before we get into the examples: distributions to adult children, parents or other family members already need to be handled properly under existing law. Section 100A of ITAA 1936, reimbursement agreement principles, unpaid present entitlement issues and basic trust law still matter. If a trust distribution is made to an adult child but the money is really used for the parents’ benefit, that was already a problem before this Budget. The point of the examples below isn’t that every family distribution was automatically safe under the old rules. The point is that genuine low-rate beneficiary distributions that were previously effective may now be dragged up to a 30% minimum tax outcome.

Worked Example 1: The Trades Business Family

Meet Sam and Anna.

Sam runs his electrical contracting business through the Sam Family Trust, an Australian discretionary trust. Anna stays home with their two children (aged 4 and 7) and handles the trust’s administration, books and chasing of invoices unpaid for three months too long.

The trust’s net taxable income for the 2028-29 income year is $130,000.

Current rules (pre-1 July 2028):

The trustee distributes $90,000 to Sam (who pays tax at marginal rates) and $40,000 to Anna. Anna’s only other income is a small bank interest amount of $200.

Anna’s income: $40,200. Tax payable (using current rates and the LITO): approximately $3,500.

Sam’s income: $90,000. Tax payable: approximately $19,700.

Family total tax: approximately $23,200.

Proposed rules (from 1 July 2028):

The same distribution attracts a 30% trustee-level tax on the entire $130,000.

Trustee-level tax: $130,000 x 30% = $39,000.

Sam’s distribution: $90,000, with a $27,000 non-refundable credit for tax already paid by the trustee. Sam’s gross tax on $90,000 is approximately $19,700. He uses $19,700 of his $27,000 credit, and the remaining $7,300 is lost.

Anna’s distribution: $40,000, with a $12,000 non-refundable credit. Anna’s gross tax on $40,000 is approximately $3,500. She uses $3,500 of her $12,000 credit, and the remaining $8,500 is lost.

Family total tax under the proposed rules: $39,000. Sam and Anna can use the credits only to reduce their personal tax on the trust distributions to nil. Any excess credit is wasted. The trustee tax is the floor, and the floor is now doing the damage.

Net additional tax for the family: $39,000 minus $23,200 = approximately $15,800 a year.

That’s a substantial increase in the family’s annual tax bill for the same business income, the same family, the same work. The reason is the non-refundable nature of the trustee credit and the fact that Anna’s marginal rate is well below 30%.

Sam and Anna’s likely planning response: pay Anna a proper wage for the bookkeeping and administration she actually does (which moves that income out of trust net income), reconsider whether the trust is still the right vehicle, and look hard at whether restructuring to a company is worth doing during the rollover relief window.

Worked Example 2: The Investment Trust With Adult Children

Meet the Khouris.

Maria and Tony Khouri established the Khouri Family Trust 18 years ago. The trust holds a portfolio of Australian shares, an ETF, and a small Brisbane investment property. Net taxable trust income for the 2028-29 year is $80,000 (dividends, interest, net rent after deductions, a small net capital gain).

Maria and Tony are both on the top marginal rate from their professional employment. Their two adult children, Lara (22, finishing engineering at uni, earns $12,000 a year from a part-time job) and Joel (19, finishing his second year of law, earns $8,000 a year as a research assistant), have historically been the main beneficiaries of trust distributions.

Current rules:

Trustee distributes $40,000 to each of Lara and Joel. After applying the tax-free threshold and LITO:

Lara’s total income: $52,000. Tax payable: approximately $7,300.

Joel’s total income: $48,000. Tax payable: approximately $5,700.

Family total tax on the $80,000 trust income: approximately $13,000.

Maria and Tony also gain a meaningful capital deployment for the kids’ rent, fees, books, and the occasional dignified meal.

Proposed rules:

The $80,000 trust income attracts a 30% trustee-level tax of $24,000.

Lara’s distribution: $40,000 with a $12,000 non-refundable credit. Her gross tax on total income of $52,000 is approximately $7,300. She uses $7,300 of her $12,000 credit, and the remaining $4,700 is lost.

Joel’s distribution: $40,000 with a $12,000 non-refundable credit. His gross tax on $48,000 is approximately $5,700. He uses $5,700 of his credit, and the remaining $6,300 is lost.

Family total tax under new rules: $24,000.

Net additional tax: $11,000 a year, on what is essentially the same investment portfolio earning the same return for the same family.

The kicker: the additional tax is entirely a function of the non-refundable credit design. The family hasn’t done anything wrong. They’ve simply been using a structure that’s about to be re-engineered around them.

This assumes Lara and Joel are genuinely made presently entitled to the distributions and genuinely receive or benefit from the funds. If the money is simply recycled back to Mum and Dad, different problems already arise under existing trust law and section 100A. The point of this example is that distributions to genuine low-rate beneficiaries used to work cleanly under the old rules. From 1 July 2028, even those genuine distributions get pulled up to the 30% minimum.

The Khouris’ likely response: look at gifting investments directly to the children (with CGT implications), restructure into a fixed unit trust or company, or simply accept the higher tax and adjust the level of trust support to the kids accordingly. Restructure options have their own costs and trade-offs (CGT on transfer, stamp duty in some states, ongoing compliance) that have to be weighed against the recurring annual tax saving. Generic “convert to a company” advice is not advice. The numbers need to be modelled.

Worked Example 3: The Bucket Company Group

Meet the Daniels Group.

The Daniels Family Trust holds a successful Australian consulting business. The business generates $400,000 a year of net taxable trust income.

Daniels Investments Pty Ltd, a bucket company owned by Daniels Holdings Pty Ltd (which in turn is owned by Mr and Mrs Daniels), has historically received a chunk of the annual trust distribution. The reason is simple: $200,000 distributed to the bucket company pays company tax at 30% (this is a passive investment company holding the after-tax profits, not a base-rate entity for the relevant year). The remaining $200,000 is distributed across Mr and Mrs Daniels at their marginal rates.

Current rules:

Trust income: $400,000.

• $200,000 to bucket company: $60,000 tax (30% company rate). After-tax $140,000 sits in the company, available to be paid out as a franked dividend in a future year at the directors’ choosing.
• $200,000 split between Mr and Mrs Daniels: total personal tax of approximately $59,000 (combined, simplified).

Total tax this year: approximately $119,000. Plus $86,000 of franking credits sitting in the bucket company’s franking account, available for future dividends.

Proposed rules (from 1 July 2028):

The trustee pays 30% minimum tax on the full $400,000 = $120,000 trustee-level tax.

• $200,000 distributed to the bucket company: no credit available. The bucket company has $200,000 of trust distribution income, but the trustee has already paid $60,000 of trustee-level tax on that share with no credit flowing to the company. Whether the bucket company also pays additional company tax on its share of the distribution is one of the design questions still being consulted on. Worst-case, and consistent with the policy direction of stopping trustee credits being laundered through bucket companies, the bucket company pays additional tax on top, materially increasing the effective rate on this slice of income.
• $200,000 distributed to Mr and Mrs Daniels: $60,000 of non-refundable credit available. Their combined gross tax on the $200,000 is approximately $59,000. They use approximately $59,000 of their $60,000 credit. About $1,000 is wasted.

The Daniels Group’s effective annual tax bill increases materially, the bucket company strategy stops adding tax value, and the franking credit pool stops growing in any useful way.

The Daniels’ likely planning response will depend on what they actually want the structure to do. If the bucket company was being used purely as a tax deferral vehicle, the case for it is much weaker. If it was being used for asset protection, separation of risk, or future succession planning, it may still have merits. But the headline tax saving from running income through it is largely gone.

One of two paths is likely. Either restructure the business out of the discretionary trust entirely (using the rollover relief, if eligible), or reorganise the corporate group so that the operating business sits in a company with multiple share classes (see the section below). In either case, the comparative tax modelling is unique to each family and each structure. There’s no template.

The Franking Credit Trap Nobody’s Talking About

Quick technical point that’s quietly important.

If your discretionary trust receives franked dividends from Australian shares (a common scenario), the franking credits attached to those dividends currently flow through to beneficiaries who then claim them on their personal returns. Refundable franking credits are one of the genuinely valuable features of the Australian imputation system.

Under the proposed measure, the design is that trustees who receive franked dividends will be required to use their franking credits to pay the minimum tax (Source: Mallesons, “Australian Federal Budget 2026-27: Funds/Trusts”, May 2026). What may previously have produced refundable franking credit outcomes for low-rate beneficiaries could instead be absorbed at trustee level to satisfy the minimum tax. The treatment of excess franking credits remains a design issue for consultation, which is exactly why this part of the measure needs close attention.

In simple terms: trust-held Australian share portfolios may lose much of the refundable franking credit benefit that low-rate beneficiaries previously enjoyed. The franking credit may be absorbed at trustee level to satisfy the minimum tax, rather than flowing through cleanly as a refundable credit to the beneficiary. The treatment of excess franking credits is still subject to consultation, but the warning light is already flashing for retirees, university-age beneficiaries, and anyone else who has been receiving refunds of franking credits via a trust.

This is a point that hasn’t yet been widely discussed in the commentary, and it’s one of the items where the final legislation will matter enormously. The Government has signalled that consultation will deal with the mechanics of how trustees use franking credits, and how the minimum tax interacts with the imputation system (Source: Corrs Chambers Westgarth, “Australian Federal Budget 2026-27: corporate tax measures”, May 2026).

If you hold Australian shares in a discretionary trust and rely on franking credits flowing through to lower-rate beneficiaries, this is a planning issue worth taking seriously.

What This Means For Australian Expats

Expat-specific implications come in three flavours.

If you’re a non-resident with an Australian discretionary trust still in place: the trust continues to operate, but the distributions you receive as a non-resident beneficiary may already be subject to non-resident withholding tax. The 2026 Budget materials suggest the minimum tax doesn’t stack on top of amounts already subject to NR withholding tax, which means the existing withholding regime continues to apply for non-resident beneficiaries. The complexity sits in the design detail: whether a single trust with both Australian-resident and non-resident beneficiaries faces split treatment, and how the trustee’s franking credits are allocated, are matters for the final legislation. For now, treat the position as “your trust still works for you as a non-resident, but the mechanics for your Australian-resident family members back home have changed materially”.

If you’re a returning expat with an Australian discretionary trust: the measure applies to your trust from 1 July 2028, with no grandfathering. If you’ve been distributing to a non-working spouse or low-rate family members since your return, that strategy stops being tax-effective. Restructure planning needs to start now, not in 2028.

If you’re a returning expat planning to set up a structure in Australia: seriously consider whether a discretionary trust is still the right starting point for your circumstances. For asset protection it may still be appropriate. For tax minimisation, a company structure with carefully designed share classes (covered below) may be more durable.

If you’re an Australian expat considering leaving Australia and want to consolidate Australian holdings before departure: the interaction between the trust 30% minimum tax, the 50% CGT discount changes from 1 July 2027, and the foreign resident main residence denial rules from 2019 is the kind of multi-layered analysis where good planning pays for itself many times over. We covered some of this in the main residence exemption article.

The general principle: Australian expats with trust structures face the same fundamental change as Australian-resident clients, but with the added complexity of cross-border residency timing, withholding tax regimes, and treaty considerations.

The Three-Year Restructure Rollover Relief Window

The Government has announced rollover relief to facilitate restructures out of discretionary trusts. The key features:

The relief is available for a three-year period, from 1 July 2027 to 30 June 2030.

The relief is designed to allow assets to be transferred out of a discretionary trust to other structures (a company, a fixed trust, etc) without triggering Australian federal income tax consequences, including CGT.

Important: the rollover relief is expected to cover federal income tax consequences, including CGT. It doesn’t automatically solve state stamp duty, landholder duty, foreign purchaser surcharge, GST, financing, asset protection or commercial issues. State-level stamp duty (also called transfer duty in some jurisdictions) is administered separately by state revenue offices and applies in its own right. As things stand, most state revenue offices charge stamp duty on the transfer of property out of a trust to another entity. That can be a material cost, which we cover in the next section.

The Government has signalled that consultation will deal with the precise scope of the rollover relief. Specific details still to be confirmed include which target structures qualify (some sources confirm both fixed trusts and companies; others suggest the rollover is narrower than that), whether ancillary transactions like trust splitting also qualify, and what happens to franking credits and tax losses on the transferring trust.

The practical recommendation: don’t wait for legislation to plan. Talk to your adviser now about whether a restructure is appropriate, what the target structure should look like, and what the stamp duty exposure looks like in your state. Three years sounds long. It isn’t, when state revenue offices, lenders, accountants, lawyers and family members all have to be coordinated.

(Source: Budget 2026-27 Fact Sheet, Minimum Tax on Discretionary Trusts; SmartCompany, “Budget 2026: New 30% minimum tax rate for discretionary trusts in push for ‘fairness'”, 13 May 2026.)

The Stamp Duty Trap

This deserves its own section, because it’s where most “let’s restructure out of the trust” conversations actually fall apart.

State stamp duty is charged on transfers of dutiable property. Land. Goodwill. Some other categories. The CGT rollover relief at federal level does nothing to prevent state stamp duty applying.

Indicative duty issues, current at the time of writing and subject to change:

• NSW: standard transfer duty can be material, and surcharge purchaser duty is 9% for foreign persons acquiring residential-related property from 1 January 2025 (Source: Revenue NSW, Surcharge Purchaser Duty Guide).
• Victoria: foreign purchaser additional duty is 8% for foreign purchasers acquiring residential property (Source: State Revenue Office Victoria, Foreign Purchaser Additional Duty).
• Queensland: additional foreign acquirer duty is 8% for relevant residential land transactions (Source: Queensland Revenue Office, AFAD).
• Other states and territories: rates and surcharge rules vary, and the foreign trust rules can be particularly unforgiving.

On an investment property worth $1 million held in a discretionary trust, transferring the property to a company in NSW could trigger standard transfer duty of roughly $40,000, before any surcharge. If the recipient entity is treated as foreign and surcharge purchaser duty applies, the 9% surcharge could add another $90,000, taking the total duty cost to around $130,000.

That’s a material cost. Whether it’s worth incurring depends on whether the annual tax saving from the new structure exceeds the duty cost (typically considering a meaningful time horizon and the discount rate).

For many trust-held investment properties, the answer is no. The duty cost exceeds the present value of the annual tax saving. In that case, the practical move is to hold the asset in the existing discretionary trust, accept the 30% minimum tax, and look for ways to reduce the trust’s annual taxable income (employee wages, depreciation, deductible interest, etc).

For trust-held business goodwill or shares in a private company, the duty exposure is often smaller (some states exempt or concessionally treat the transfer of business shares). The cost-benefit analysis changes accordingly.

The general rule: the rollover relief is genuinely useful for some structures, mostly unhelpful for others, and the decision must be made on the numbers for your specific situation.

Some state revenue offices have been gradually offering concessional treatment for genuine corporate restructures using the federal rollover relief. Watch this space. The likelihood of state revenue offices unilaterally waiving stamp duty on a federally-incentivised restructure is, however, low.

A Legitimate Alternative: Restructure to a Company With Different Classes of Shares

This is the structure that comes up most often in our restructuring conversations, so it’s worth dealing with in detail.

The basic idea: instead of holding assets in a discretionary trust, hold them in a private company. The company pays tax at the company rate (30% for most passive-investment companies, 25% for base-rate entities where eligible). Profits accumulate inside the company. Dividends are paid out to shareholders at the directors’ discretion, with attached franking credits.

Where it gets interesting is the share structure.

A private company can issue multiple classes of shares (A class ordinary, B class ordinary, C class ordinary, and so on). Each class can have different rights attached, including separate dividend entitlements. Mum can hold A class shares. Dad can hold B class shares. Adult children can hold C and D class shares. The directors can decide each year whether to pay dividends to one class, multiple classes, or none.

If the company has accumulated franking credits (because it has paid Australian company tax on its earnings), the dividends carry franking credits at the relevant ratio. A franked dividend to a low-marginal-rate shareholder produces a tax outcome similar to the old trust outcome, with a key difference: franking credits remain refundable at the shareholder level (subject to the existing franking credit integrity rules, more on those below).

In simple terms: by structuring with multiple share classes, the company can perform some of the income-streaming function that a discretionary trust used to perform, while paying at the same 30% rate the trust would now be paying.

This is a legitimate, long-established structure. It works for genuine passive investment companies. It is not, however, a “set up and forget” arrangement.

But be clear: a company with multiple share classes is not a discretionary trust wearing a new hat. It has different legal rights, different tax rules, different governance, different asset protection issues and different anti-avoidance risks. If it’s designed badly, it won’t be clever. It will be evidence.

The technical caveats that matter:

Caveat 1: company tax rate depends on the company’s activity. A private company that earns mostly passive investment income (rent, dividends, interest, capital gains) is generally not a “base rate entity” and is taxed at 30%, the same rate as the proposed trust minimum. A company that runs a genuine active business and meets the base-rate-entity rules (aggregated turnover below $50 million and no more than 80% base-rate-entity passive income) is taxed at 25%. The rate matters for the comparative analysis.

Caveat 2: structure the share classes at the outset, with proper documentation, and at fair value. Different share classes need to be issued for proper consideration. They need to be reflected in the company’s constitution. Each class needs commercially defensible rights. Issuing a new class of shares years after company formation, purely to enable dividend streaming to a lower-rate associated party, is the textbook fact pattern the ATO has been targeting under section 177EA of ITAA 1936, section 45B (capital benefit streaming) and Taxpayer Alert TA 2012/4 (dividend access shares). That style of after-the-fact share class restructure attracts integrity attention. Doing it properly at the start is materially safer.

Caveat 3: franking credit streaming rules apply. Section 177EA is a general anti-avoidance rule against franking credit streaming. Section 204-30 of ITAA 1997 lets the Commissioner deny franking credits where a company streams credits to members who benefit most from them. If a company’s dividend pattern shows credits being deliberately directed to low-rate shareholders to maximise refundability, the Commissioner can deny those credits. This is well-trodden territory and the integrity rules exist for a reason. Multiple-share-class companies that pay measured dividends to a mix of family members are very different from companies that suddenly pay a large franked dividend to a new shareholder for the apparent purpose of obtaining refundable credits.

Caveat 4: personal services income rules don’t go away. If the underlying business is essentially the personal exertion of one individual (a consultant, a doctor, a tradesperson working alone), Part 2-42 of ITAA 1997 attributes the income back to that individual, regardless of the structure. A company is not a way to escape PSI attribution. The strategy works for genuine passive investment, or for businesses with multiple revenue sources, employees and assets, not for one-person consulting practices dressed up as a holding company.

Caveat 5: division 7A still applies. Loans from the company to shareholders or associates are deemed dividends unless they’re put on complying loan terms (with minimum interest and principal repayments). A common trap with company structures is informal money movements between the company and family members that get caught by Division 7A. Director discipline and proper documentation are essential.

Caveat 6: the company structure is a long-game wealth structure, not a short-term tax minimisation play. Profits sit in the company. Dividends paid in any given year are a director’s decision. The flexibility is timing, not rate. The 30% company tax rate gets paid on the way in, and any top-up tax gets paid when dividends are eventually drawn. For a high-marginal-rate director planning to draw substantial dividends in a high-income year, the structure doesn’t help. For a family planning to accumulate wealth, defer top-up tax to lower-income years (retirement, sabbaticals, study leave), and pay out via lower-rate adult children at university, the structure can be genuinely effective.

Caveat 7: state stamp duty applies to the initial transfer of trust assets into the company. This circles back to the stamp duty section above. If your trust currently holds land, the duty on transferring the land into a new corporate structure could exceed the present value of the future tax saving. If your trust holds shares or business assets, the duty exposure is often smaller and the restructure becomes more attractive.

What does work, in our experience:

A private investment company set up at the start of a wealth-accumulation phase, with founding shareholders including spouse and adult family members (at the time of incorporation), each holding their own class of shares, paid for at fair value, with the company holding a diversified portfolio of passive investments. Annual director decisions on dividend declarations based on each shareholder’s circumstances. Proper accounting, proper minutes, proper everything. Franking credits accumulate in the company’s franking account and flow through to shareholders when dividends are declared.

This is a structure that has worked well for clients for decades and continues to be a defensible response to the proposed trust changes. The combination of corporate flexibility, franking credit refundability, accumulating reserves, and director-controlled timing is genuinely useful.

It isn’t simple. It isn’t cheap to set up. It isn’t suitable for every family. And it should be designed with a lawyer and an accountant working together, not from a YouTube video.

If you’re considering this kind of structure as a response to the trust changes, that’s exactly the conversation we have in our planning consultations. We can model your specific numbers, identify the right structure for your assets and family circumstances, and walk you through the steps to set it up properly.

Other Restructure Options Worth Considering

The company-with-share-classes option is one path. It isn’t the only one.

Fixed unit trust. Unlike a discretionary trust, a fixed trust has beneficiaries with defined, fixed entitlements to income and capital. The 30% minimum tax is not expected to apply to fixed trusts. The cost is flexibility: once you’ve set up the unit trust and issued the units, you can’t reallocate income at year-end the way a discretionary trustee can. Useful for clients who want certainty of beneficial entitlements (and willing to give up the flexibility), or for cases where the underlying asset base supports a defined ownership split. One warning: “fixed trust” isn’t just a label on the deed. The beneficiaries’ rights to income and capital need to be genuinely fixed, and the tax meaning of fixed entitlement can be stricter than many people expect.

Restructure to individual ownership. For some smaller trust structures, the practical answer is to wind the trust up and have the underlying assets owned directly by the relevant individuals. Loses the asset protection benefits of the trust, but eliminates trust compliance costs and removes any future minimum tax exposure. Worth considering where asset protection isn’t a meaningful concern (for example, retirees holding a small investment portfolio).

Hold investments inside super (after returning to Australia). For returning expats with cash and conservative investment plans, the option of contributing to superannuation and holding investments in an SMSF or large fund deserves consideration. Super fund earnings are taxed at 15% in accumulation phase and (currently) 0% in retirement phase, well below the 30% trust minimum. The constraints are the contribution caps, the preservation rules, and the very limited ability to access the money before age 60. For some clients, super is a partial solution. For others, contribution caps mean it’s only ever a piece of the puzzle.

Stay in the trust and reduce trust net income. For some structures, the cleanest response is to accept the 30% minimum tax on trust income and look for legitimate ways to reduce that taxable income. Paying employee wages to family members who actually work in the business (which doesn’t attract the minimum tax). Higher levels of legitimate deductible expenditure. Investments that generate income with lower current taxable yield (a growth-focused portfolio rather than an income-focused portfolio). None of these are tax tricks. They’re just rational responses to a rate change.

Wind down the trust gradually, distribute remaining assets over time. For older trust structures with retired or about-to-be-retired beneficiaries, the practical option is to use the next few years to distribute out the bulk of the trust assets while marginal rates are favourable, and either wind up the trust formally or let it sit empty.

There is no universal right answer. Each family’s facts produce a different optimal structure. We don’t have a template solution because there isn’t one.

Planning Levers for Discretionary Trust Owners

Five practical strategies worth considering.

Don’t wait for the legislation. The measure is announced. The mechanics may change at the margins. The direction is settled. Starting your planning conversation now buys you optionality. Starting it in 2028 buys you a queue.

Pay wages to family members who actually work in the business. If your trust is holding an active business and family members genuinely contribute work, paying them as employees moves their income out of the 30% trust minimum tax net. The income gets taxed at their personal marginal rates. Paying wages only works where the family member genuinely works in the business, the amount is commercially reasonable for the work performed, and the employer actually deals with PAYG withholding, superannuation guarantee, workers compensation and payroll administration. Calling a trust distribution a wage after the fact will not do.

Model the comparative numbers, not the headline rates. The 30% minimum trust tax sounds bad. The 30% company tax rate (for passive companies) sounds the same. But the comparative outcomes for your family depend on your asset profile, your beneficiaries’ marginal rates, the franking credit treatment, the state-level stamp duty on transferring assets, and the long-term plans for the structure. Without proper modelling, the choice between alternatives is a guess.

Talk to a lawyer about the company constitution and share rights before you incorporate. If a multiple-share-class company is on the table, the share rights need to be properly designed at incorporation. Different classes of shares carrying different dividend rights need to be set up in the company’s constitution from the start, with shareholders paying fair value for their respective classes. Retrofitting a share class structure years after incorporation, purely to enable dividend streaming, is the classic fact pattern that attracts integrity attention. Do it right at the start, or don’t do it.

For expats: time your residency moves around the structure changes, not the other way round. If you’re planning to return to Australia or leave Australia in the next few years, the trust changes interact with the residency CGT rules and the timing matters. Returning to Australia after a major trust restructure produces different outcomes than restructuring after a return. Each variant has implications. The combination of the three-year trust rollover (1 July 2027 to 30 June 2030) and the section 855-45 cost base reset on becoming Australian tax resident creates a planning window worth analysing properly.

Right, So What Now?

Look, here’s the bottom line.

The proposed 30% minimum tax on discretionary trusts is one of the largest structural changes to Australian private group taxation in decades. It affects roughly one million Australian families. It’s likely to be enacted broadly as announced, even if some of the detail shifts. The rollover relief window runs from 1 July 2027 to 30 June 2030.

For families that have been told for decades that “the family trust is the answer”, the answer has changed. For some, the right response is a careful restructure to a company with multiple share classes, designed properly at incorporation and run with professional discipline. For others, the right response is to wind the trust down gradually, distribute remaining assets over time, and accept the new tax outcome on residual income. For others again, the right response is to hold the trust unchanged, pay the minimum tax, and reduce trust taxable income by paying genuine wages to working family members.

What you can’t do is wait and hope the rules don’t apply to your family. They will. They apply from 1 July 2028, with no grandfathering.

The right response depends entirely on your specific circumstances. Your assets. Your beneficiaries. Your state. Your business activities. Your return-home plans. Your retirement timeline. Your asset protection priorities. Generic “convert to a company” advice is not advice.

We’ve spent more than 20 years specialising in tax for Australian expats and their families, including the structures they bring with them when they leave Australia and the structures they set up when they return. If you have a discretionary trust, or you’re considering setting one up, the conversation is worth having now rather than later.

Important Notes

This article is general information based on the 2026-27 Federal Budget announcement of 12 May 2026. The 30% minimum tax on discretionary trusts is announced but not yet law. The Government has indicated consultation will deal with several key design questions, including the precise mechanics of franking credit usage at the trust level, the treatment of corporate beneficiaries in detail, the scope of the rollover relief, and the operation of section 100A in this new environment. The final legislation may differ materially from what has been announced. We will update this article as the detail emerges.

The worked examples are illustrative and use simplified assumptions. Actual tax outcomes for any specific trust depend on the trust’s deed, the assets held, the income generated, the beneficiaries’ circumstances, the residency of all parties involved, and how the final legislation deals with the design issues currently under consultation. None of the examples constitute personal tax advice.

The section on restructuring to a company with multiple share classes is a high-level description of a legitimate structuring option. It is not a how-to guide. The legal, accounting and stamp duty mechanics of any specific restructure need to be designed by qualified professionals working with the family’s specific facts. Anti-avoidance provisions including (without limitation) section 177EA of ITAA 1936, section 45B, Taxpayer Alert TA 2012/4, the personal services income rules in Part 2-42 of ITAA 1997, and Division 7A apply to corporate structures and need to be properly considered in any structuring decision.

The views expressed in the editorial sections of this article (including ‘Our Honest Take Before We Start’ and ‘Who This Actually Hits’) are intentionally opinionated. They reflect our practice experience advising Australian expats, returning expats, Australian business owners and Australians considering leaving Australia. They are policy commentary and general tax information, not personal tax advice. Reasonable people may disagree, and your situation may call for a different conclusion once your facts are on the table.

The 2026-27 Budget papers are publicly available at budget.gov.au if you want to read them in full. The most relevant document for this article is the Budget 2026-27 Fact Sheet: Minimum Tax on Discretionary Trusts, plus Budget Paper No. 2 page 22.

Other sources referenced in this article include public commentary published in the days following the Budget by William Buck, Pitcher Partners, Baker McKenzie, Mallesons, Corrs Chambers Westgarth, BDO, Ashurst, and SmartCompany. We thank those firms and their tax teams for early and thoughtful analysis of an unusually complex measure.

Right. That’s the lot. Time to look at your structure with fresh eyes.

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Shane Macfarlane CA

CEO & Founder at Expat Taxes

Shane's an Australian Chartered Accountant and Australian expat tax specialist who's also an expat himself (based in Asia). Shane's passionate about tax and legitimate tax minimisation, tax-planning and structuring, particularly as it relates to Australian expats who are often subject to high rates of tax back home in Australia.

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Latest posts by Shane Macfarlane CA (see all)

• 2026 Budget: 30% Minimum Tax on Discretionary Trusts - 17/05/2026
• 2026 Budget Main Residence Exemption: Expat Tax Guide - 15/05/2026
• Australian Expat Tax Changes – 2026 Budget Guide for Expats - 13/05/2026