The Government has announced a new 30% minimum tax for discretionary trusts, proposed to start from 1 July 2028. If implemented, the trustee would pay the minimum tax upfront, and eligible beneficiaries would generally receive a credit to help avoid double taxation.
What’s changing with discretionary trusts?
Beneficiaries would still include trust distributions in their own tax returns. However, beneficiaries (other than corporate beneficiaries) would generally receive a non‑refundable tax credit for the tax paid by the trustee, which can be used to offset their tax payable for that year.
- Not intended to apply to: fixed trusts (including fixed testamentary trusts), widely held trusts, complying superannuation funds, special disability trusts, deceased estates and charitable trusts.
- Some income expected to be excluded: including primary production income, certain income relating to vulnerable minors, amounts subject to non‑resident withholding tax, and income from assets of discretionary testamentary trusts existing at the time of the announcement.
- More detail to come: consultation has been flagged on how the minimum tax will be collected, how excess franking credits are treated, and the design of any restructuring (rollover) relief.
Restructuring option: proposed rollover relief
To support small businesses (and others) that want to move out of a discretionary trust structure, the Government has announced proposed rollover relief for eligible restructures into another entity type (for example, a company or a fixed trust). The relief is intended to cover income tax consequences of restructuring, including capital gains tax, and would be available for a three‑year window from 1 July 2027.
What this means for you
- If you use a discretionary trust (for investment or business), these changes could affect the overall tax outcome for adult beneficiaries and may change how distributions are planned from 1 July 2028.
- If you currently distribute to a company beneficiary, note the announcement says the beneficiary credit would not be available for corporate beneficiaries — the detail here will be important.
- Fixed trust structures may become more attractive for some families (particularly where succession planning and asset protection are key), but the right structure depends on your circumstances and trust deed flexibility.
- Hold off on big decisions until we see draft legislation. Announcements often change in the detail, and there are flagged exclusions that may apply to you.
Next steps
We recommend reviewing (i) your current trust structure(s), (ii) typical distribution patterns, and (iii) whether you may want to model outcomes or consider a restructure during the proposed rollover window (from 1 July 2027).
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