The 2026 Federal Budget has delivered one of the most significant proposed shifts in Australia’s tax structure in decades.

Treasurer Dr Jim Chalmers has announced a planned 30% minimum tax on discretionary family trusts, targeting one of the most widely used structures for small business operations, wealth management, and family income distribution.

At Latitude Accountants, our philosophy is simple: the real impact of tax policy is not in the headlines, but in how it changes cash flow, structure, and long-term planning.

This guide breaks down what is being proposed, who it affects, and what business owners should consider next.

What Happened? Key Trust Tax Changes

The Federal Budget proposes a 30% minimum tax rate on discretionary trusts, scheduled to apply from 1 July 2028, with transitional relief beginning 1 July 2027.

Key changes include:

• A 30% tax floor applied to trust distributions
• Applies where beneficiaries are taxed below 30%
• Designed to reduce income splitting via trusts
• Transitional restructuring window over 3 years (from 2027)
• Select exemptions may apply (details pending legislation)

Under the proposal, even if a beneficiary normally pays little or no tax, the trust distribution would still be effectively taxed at a minimum 30%.

Why This Matters

Family trusts have long been used for:

• Income distribution flexibility
• Family tax planning
• Asset protection
• Small business structuring

This reform changes the equation.

By introducing a tax floor, the government is effectively aligning trusts closer to corporate tax settings and reducing the advantage of distributing income to lower-tax individuals.

For many small businesses, this may reshape whether a trust remains the most efficient structure going forward.

Who Should Pay Attention?

This change is not limited to high-net-worth families.

1. Small and Medium Business Owners

Businesses using discretionary trusts for trading, contracting, or service income.

2. Family Trust Groups

Families distribute income to adult children or multiple beneficiaries.

3. Property Investors

Those holding real estate or capital-growth assets inside trust structures.

4. Advisors and Trustees

Accountants, directors, and trustees are managing compliance, distribution, and structuring decisions.

What Are the Tax and Business Implications?

1. End of Low-Tax Income Splitting

Distributing income to low or zero-income beneficiaries will no longer produce near-zero tax outcomes.

Instead, a minimum 30% tax applies, reducing flexibility in family income distribution.

2. Greater Competition with Company Structures

With trusts effectively taxed at 30%, companies taxed at 25% may become more attractive for:

• Retaining profits
• Reinvesting earnings
• Managing working capital

3. Capital Gains Tax Complexity

Trusts may still access CGT discounts, but the interaction with the 30% floor may reduce overall efficiency depending on distribution outcomes.

4. Increased Compliance Pressure (Section 100A Context)

This proposal builds on existing enforcement trends, such as Section 100A, increasing scrutiny around:

• Distribution decisions
• Reimbursement agreements
• Beneficiary entitlements

What Should Business Owners Do Now?

There is no immediate action required, but planning is essential.

Review Your Structure

Assess whether your current trust setup still aligns with long-term tax efficiency.

Model Alternatives

Compare trust vs company structures under the proposed tax environment.

Use the Transition Window

The 2027–2028 rollover period may provide restructuring opportunities.

Plan Early

Waiting until the final year increases the risk of rushed and inefficient restructuring.

Common Mistakes to Avoid

• Treating proposed laws as already active
• Restructuring too early without advice
• Assuming trusts lose all benefits (they still offer asset protection)
• Ignoring compliance risks under ATO enforcement trends
• Delaying review until 2028

Frequently Asked Questions

Is the 30% trust tax law active now?

No. It is a proposed measure scheduled for 1 July 2028, pending legislation.

Does this apply to all trusts?

No. It primarily targets discretionary (family) trusts.

Can I still use a family trust?

Yes. Trusts still provide asset protection and structuring benefits.

Will companies be affected?

No change to the current 25% base corporate tax rate.

Is there a transition period?

Yes. A proposed 3-year restructuring window starting July 2027.

Should I restructure immediately?

No. Any changes should be based on professional advice and finalized legislation.

Final Thoughts

The proposed 30% minimum tax on discretionary trusts marks a major shift in how Australia treats family structures and small business taxation.

While the change is not yet law, it signals a clear policy direction: reducing the effectiveness of income distribution through trusts.

For business owners, the focus now is not reaction, but preparation.

Understanding your structure early allows for better decisions, fewer disruptions, and stronger long-term tax positioning.

Need Help Reviewing Your Trust Structure?

If you are unsure how these proposed changes may affect your business or family trust, speak with Latitude Accountants.

We can help you:

• Review your current trust structure
• Model tax outcomes under new rules
• Explore alternative structures
• Improve long-term tax efficiency
• Ensure compliance with evolving ATO requirements

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

Disclaimer

This article is for general informational purposes only and does not constitute financial, legal, or tax advice. You should seek professional advice before making any structural or financial decisions.