Australia’s 2026 Federal Budget introduces significant changes to the way discretionary trusts are taxed, with a new minimum tax rate of 30% set to apply from 1 July 2028.

For business owners who use a discretionary trust as part of their business or investment structure, these changes could have important implications for how income is distributed and how the trust operates.

In this article, Latitude Accountants looks at the proposed discretionary trust tax changes, who may be affected, which trusts and income types are excluded, and what business owners should consider before the new rules begin.

What Is Changing for Discretionary Trusts?

Under the 2026 Federal Budget reforms, trustees of discretionary trusts will be subject to a minimum tax rate of 30% on taxable trust income from 1 July 2028, subject to specific exemptions and rules.

The Government’s stated aim is to better align the tax rate applying to discretionary trust income with tax rates paid on other forms of income.

The reform is particularly relevant to discretionary trusts that currently distribute income to beneficiaries who are taxed at lower marginal tax rates.

The Government has also proposed transitional measures to give affected businesses time to consider whether their existing structure remains appropriate.

Why Are Discretionary Trusts Being Targeted?

Discretionary trusts have traditionally provided business owners and families with flexibility when distributing income between eligible beneficiaries.

Depending on the circumstances, trust distributions can allow income to be allocated to beneficiaries with different tax rates.

The Government argues that this flexibility can result in some trust income being taxed at rates below those generally paid by workers.

The new minimum tax is intended to reduce this difference and create what the Government considers a fairer and more sustainable tax treatment.

However, the changes do not mean that every Australian business using a trust will automatically face a 30% tax bill on all trust income.

There are important exclusions, exemptions and proposed alternatives that business owners need to understand.

When Will the 30% Minimum Tax Apply?

The new minimum tax is scheduled to apply from 1 July 2028.

This gives affected businesses time to review their structures before the new rules commence.

The Government has also proposed rollover relief for taxpayers who choose to restructure out of a discretionary trust, with relief available for three years from 1 July 2027.

This transition period is particularly important for small businesses that may need to consider whether continuing to operate through a discretionary trust remains appropriate.

Which Trusts Are Excluded?

One of the most important points for business owners is that the 30% minimum tax will not apply to every type of trust.

The Government has identified several exclusions, including:

• Fixed trusts
• Certain testamentary trusts
• Charitable trusts
• Special disability trusts
• Superannuation funds
• Deceased estates
• Certain primary production income
• Certain income relating to vulnerable minors

The Government has also stated that distributions to registered charities and deductible gift recipients will be exempt, subject to the proposed rules.

This means the first step for any business owner should be understanding exactly what type of trust they have and how it currently operates.

What Does This Mean for Small Business Owners?

The changes could be particularly important for small business owners who have traditionally used discretionary trusts for income distribution and asset protection purposes.

However, the Government estimates that less than 10% of Australia’s 2.7 million active small businesses will be affected in any given year.

For businesses that are affected, the key issue is not simply the headline 30% rate.

Business owners will need to consider:

• How much income is generated through the trust
• Who currently receives trust distributions
• The tax rates applying to those beneficiaries
• Whether the trust owns business or investment assets
• Whether the trust is being used for business operations, investments or both
• Whether the trust’s current structure still provides a commercial benefit
• Whether restructuring could improve the overall position

The right approach will depend on the individual circumstances of the business and its owners.

Could Business Owners Restructure Their Trust?

Potentially, yes.

The Government has announced rollover relief for three years from 1 July 2027 to assist small businesses and others who decide to restructure out of discretionary trusts.

The September 2026 exposure draft also introduces another proposed option: certain discretionary trusts may be able to elect to make fixed distributions to pre-nominated beneficiaries and become exempt from the minimum tax, rather than restructuring.

Importantly, the proposed election would not require a restructure and is not expected to trigger state or territory stamp duty.

These proposals are designed to give businesses more flexibility as they assess their options.

Should You Get Rid of Your Discretionary Trust?

Not necessarily.

A discretionary trust may still provide legitimate commercial and succession benefits depending on the circumstances.

For example, a trust structure may have been established for reasons beyond simply managing tax, including:

• Business succession planning
• Asset ownership
• Family wealth planning
• Separating business and personal assets
• Flexibility in distributing income
• Long-term investment planning

The new tax rules should therefore be considered as part of the entire business structure, rather than viewed in isolation.

Simply changing structures because of the 30% headline rate could create unnecessary costs or other tax consequences.

What Should Business Owners Do Now?

There is no need to panic, but business owners using discretionary trusts should start reviewing their position.

A sensible review could include:

1. Understand Your Current Structure

Identify exactly how your trust is structured, what assets it owns and how income is currently distributed.

2. Review Your Distributions

Look at who receives distributions and the tax rates that currently apply to those beneficiaries.

3. Model the Future Tax Impact

Calculate how the proposed minimum tax could affect the business under different income and distribution scenarios.

4. Consider Alternative Structures

Depending on the circumstances, it may be worth comparing the existing trust structure with other options.

5. Avoid Making Rushed Decisions

The Government is still finalising the detailed implementation of the reforms, with exposure draft legislation released in September 2026 and consultation continuing until 18 September 2026.

Business owners should therefore make decisions based on the final legislation and their individual circumstances rather than reacting to headlines alone.

The Bottom Line for Australian Business Owners

The 2026 discretionary trust tax changes represent a significant shift in how certain trusts will be taxed.

From 1 July 2028, affected discretionary trusts will face a 30% minimum tax, but there are important exemptions and alternative arrangements that mean the reform will not affect every trust or every small business.

For business owners, the most important question is not simply whether the 30% rate applies.

It is whether the existing structure still makes sense once the new rules, business objectives, asset ownership, distributions and long-term plans are considered together.

With the changes approaching, now is a good time to review your trust structure and understand your options before making any major decisions.

Frequently Asked Questions About 2026 Discretionary Trust Tax Changes

When does the 30% discretionary trust tax start?

The new minimum tax is scheduled to apply from 1 July 2028 to affected discretionary trusts.

Will every discretionary trust pay 30% tax?

No. The reforms include a range of exclusions and exemptions. Certain fixed trusts, charitable trusts, special disability trusts, superannuation funds, deceased estates, certain testamentary trusts and specified types of income are excluded.

Will small businesses be affected by the changes?

Some will be, but the Government estimates that less than 10% of Australia’s 2.7 million active small businesses will be affected in any given year.

Can I restructure my discretionary trust before 2028?

The Government has proposed rollover relief for three years from 1 July 2027 to assist taxpayers who want to restructure. Other options have also been proposed, including an election for certain trusts to make fixed distributions to nominated beneficiaries.

Should I close my discretionary trust?

Not necessarily. A trust may still provide commercial, asset ownership, succession or other benefits. Any decision to restructure should consider the complete financial and tax position of the business.

Want Tailored Business Advice? Let’s Chat

The 2026 tax reforms could affect business structures in different ways. If you operate your business through a discretionary trust, getting professional advice early can help you understand the potential impact and plan.

Latitude Accountants

📍 Sydney Olympic Park | Marrickville | Melbourne | Loxton
📞 1300 706 597
📧 info@latitudeaccountants.com.au

Accounting Done Right. The Latitude Way.

Disclaimer

This article provides general information only and does not constitute financial, legal, tax, mortgage, superannuation, investment or business advice. Tax laws and proposed legislation can change, and the application of the rules will depend on individual circumstances. Speak with a qualified adviser before making decisions about your business or trust structure.