The 30% trust tax draft: what firms need to decide next

The Government has released draft legislation for the 30% minimum tax on discretionary trusts announced in the 2026-27 Budget. The tax itself lands 1 July 2028. Submissions on the exposure draft closed on 18 September 2026, and that was the profession’s clearest window to shape the final legislation.

The 30% minimum tax applies at the trustee level. Non-corporate beneficiaries who are presently entitled to a share of net income can claim a non-refundable credit for the tax paid by the trustee.

Broad exclusions apply. Outside the measure:

• charitable trusts
• special disability trusts
• complying superannuation entities
• primary production income
• certain vulnerable minor income
• deceased estates
• genuine discretionary testamentary trusts

Treasury has framed the impact with numbers. More than 90 per cent of Australia’s 2.7 million active small businesses will not be affected in any given year. Around 350,000 small businesses operated through a discretionary trust structure in 2022-23, and roughly 40 per cent of those are not expected to pay additional tax or need to restructure.

For trusts that would be caught, the draft introduces an election. A discretionary trust existing at 1 July 2028 can elect into a new regime that avoids the minimum tax without needing to restructure, and Treasury has stated it is not expected to trigger state and territory stamp duties.

• The mechanism. A fixed distribution to pre-nominated beneficiaries: individuals and entities capable of benefiting under the trust at that date, including eligible companies and other trusts, with no cap on the number. A trust could, for example, nominate to distribute future income to an eligible company, with that income then taxed only as income of the company.
• Changing the nominations. Beneficiaries can only be added or changed later where a beneficiary passes away or there is a family breakdown.
• Revocation. The election stays in place until the trustee revokes it, or until it is automatically revoked because the trustee makes distributions inconsistent with it. In that year the trustee pays the highest marginal rate plus Medicare levy, with the minimum tax applying in later years.

For firms wanting to move clients out of discretionary trust structures entirely, a three-year restructure rollover is available from 1 July 2027. It facilitates the transfer of assets out of discretionary trusts to companies or fixed trusts, and provides relief from income tax consequences including capital gains tax. The rollover is designed for full restructuring, with a targeted exception for primary production assets.

The Australian Small Business and Family Enterprise Ombudsman will be available to assist small businesses to understand their options, and ASIC will put arrangements in place to support small businesses that want to incorporate.

There is a lot of active discussion in the profession about how the election will work in practice. The open questions:

• Distribution planning. Annual distribution planning has long been core to trust work, and practitioners are working through what a perpetual nomination changes for firms whose advisory practice is built around it.
• Bucket companies. The election allows corporate beneficiaries but locks in fixed proportions. Practitioners are asking how that works where underlying ownership may change over time, and in years when the mix of trust income (franked dividends, capital gains, ordinary income) does not align with the split.
• Streaming. Trust deeds often stream franked dividends to one beneficiary and capital gains to another. Whether a fixed proportion election preserves that flexibility or ends it is one area where clarification in the final legislation is being sought.
• Stamp duty, the most unresolved point. Treasury’s position is that the election is not expected to trigger it. State governments have not committed to that, and financial press coverage has flagged it as an open question for any firm considering the election. It stays a live concern until state revenue offices confirm their position.

The consultation window closed on 18 September 2026. It was short, and submitting through the Treasury Consultation Hub was the direct route to influence what becomes law.

The practical work starts now: working out which of the three mechanisms Treasury has set out (the election, the rollover, or paying the minimum tax) suits each client, starting with the client groups in the update at the top of this piece. Early conversations help set expectations, particularly where clients have relied on discretionary distribution planning. Where a restructure looks right, start the modelling now so the groundwork is done when the rollover opens on 1 July 2027.

Treasury has flagged further tranches of legislation, including administrative and integrity arrangements. The current draft covers the core components. More detail is expected on how the excess franking credit refund mechanism will work, how the reasonable cap for income tax-exempt entity distributions will be set, and how the new fixed trust definition will apply.