For decades, the family trust has been a cornerstone of Australian small business and wealth management. It has offered flexibility, asset protection, and the ability to distribute income to family members in lower tax brackets. However, the 2026 Federal Budget has signaled a major shift in how these structures will be treated by the Australian Taxation Office (ATO).

Treasurer Jim Chalmers has announced a crackdown on what the government describes as a “tax loophole for the wealthy”. The introduction of a minimum tax rate for discretionary trusts represents one of the most significant changes to private wealth taxation in recent history.

For many Australian business owners, this isn’t just a technical change—it’s a fundamental shift in how they manage their family’s financial future. This article explores the details of the new 30% minimum tax, the potential for a “wealthy exodus,” and the practical steps you need to take before the new rules take effect.

What Happened?

The 2026 Federal Budget introduced a significant new compliance measure for discretionary trusts:

• 30% Minimum Tax: Starting 1 July 2028, a minimum tax rate of 30% will apply to distributions from discretionary trusts.
• Targeting Income Splitting: The measure is designed to prevent high-income earners from distributing profit to family members (such as adult children at university) who currently pay little to no tax on that income.
• Rollover Relief: To assist those who need to change their business structure, the government is providing a three-year “rollover relief” window starting from 1 July 2027.
• Revenue Goals: The government estimates this change will bring in approximately $3.6 billion to $4 billion per year in additional tax revenue.

While the government frames this as “fairness,” critics argue it removes one of the few remaining tax planning advantages for small business owners.

Why Does This Matter for Australian Small Businesses?

Many Australian small businesses are operated through family trusts. These structures allowed families to distribute income strategically to manage overall tax liability.

Under the new rules, the benefit of distributing income to lower-taxed family members is significantly reduced once the 30% minimum applies.

This matters because:

• Increased Tax Liability: Families previously using 0–15% tax brackets will now face a 30% floor.
• Restructuring Costs: Many businesses may shift toward company structures, triggering legal and accounting costs.
• Reduced Incentive for Entrepreneurs: Some argue that this reduces the attractiveness of building businesses through trusts in Australia.

Who Should Pay Attention?

• Family Business Owners: Trust structures used for income distribution will be directly impacted.
• High-Net-Worth Individuals: Investment income strategies using trusts may become less tax-efficient.
• Parents of Adult Students: Informal income distribution strategies will be less effective.
• Accountants and Advisors: Significant shift in tax planning strategies and entity structuring advice.

What Are the Tax, Business, or Accounting Implications?

The 30% Floor

Previously, income distributed to low-income beneficiaries could be taxed at very low or zero rates. Under the new system, a minimum 30% tax applies regardless of the beneficiary’s tax bracket.

Alignment with Company Rates

The policy effectively aligns trust taxation with corporate tax rates, potentially making companies more competitive structures for retained earnings.

The “Wealthy Exodus” Risk

Some advisors warn that higher taxation may encourage capital relocation to lower-tax jurisdictions such as Dubai or Singapore.

Section 100A and Existing Rules

The ATO already enforces strict compliance under Section 100A, ensuring beneficiaries are properly taxed. The new rules add a layer of taxation.

What Should Business Owners Do Now?

• Assess Your Distribution Strategy: Review how much benefit your family currently receives from income splitting.
• Plan for the 2027 Rollover Relief: Start preparing for possible restructuring into company structures if required.
• Review Asset Protection: Trusts still provide legal and asset protection advantages.
• Forecast Cash Flow Impact: A $20,000 distribution taxed at 30% results in a $6,000 tax impact per beneficiary.

Common Mistakes to Avoid

• Ignoring the 2028 Deadline: Restructuring takes time and planning.
• Focusing Only on Tax: Trusts still provide asset protection and estate planning benefits.
• Underestimating ATO Enforcement: Increased compliance monitoring is expected.

Frequently Asked Questions (FAQ)

1. When does the 30% minimum tax start?

From 1 July 2028, subject to legislation.

2. What is a discretionary trust?

A trust where trustees decide how income is distributed among beneficiaries.

3. Does this apply to all trusts?

Primarily discretionary (family) trusts, with some exemptions yet to be clarified.

4. Can I still distribute to my kids?

Yes, but distributions will be subject to a 30% minimum tax.

5. What is rollover relief?

A transition period allowing restructuring without immediate capital gains tax consequences.

6. Why is the government introducing this?

To raise revenue and reduce perceived tax advantages in income splitting.

7. Will this affect high-income earners most?

Impact varies; some argue mid-level business owners will feel it more.

8. Is the CGT discount affected?

Its effectiveness may be reduced in combination with these changes.

9. Is this law final?

No, it still requires parliamentary approval.

10. Should I close my trust now?

No. Wait for final legislation and professional advice.

Final Thoughts

The 2026 Budget marks a major shift in how family trusts are treated in Australia. While the structure itself is not being eliminated, its tax advantages are significantly reduced.

For business owners, this means earlier planning, better forecasting, and a closer review of long-term entity structures will be essential.

Whether you choose to restructure or retain your trust, the key is making informed decisions based on clear financial data—not reactionary changes.

Need Help Understanding the 2026 Budget Changes?

If you are unsure how these new trust rules affect your business, tax position, or family wealth, speak with Latitude Accountants.

Our team can help you understand your options, plan for the 2027 rollover relief, and make better business decisions with confidence.

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

Disclaimer

This article provides general information only and does not constitute tax, financial, or legal advice. You should seek personalised advice from a qualified accountant or adviser before making changes to your trust or business structure.