Proposed Discretionary Trust Tax Changes from 2028–29
The Australian Government has announced proposed reforms that would introduce a minimum tax rate of 30% on discretionary trust distributions from the 2028–29 income year.
If implemented, these changes could have significant implications for families, investors, business owners, and professionals who currently use discretionary (family) trusts as part of their asset protection, investment, and tax planning strategies.
As with all proposed tax reforms, the final outcome will depend on legislation being passed by Parliament.
What Is a Discretionary Trust?
A discretionary trust, commonly known as a family trust, is a structure where the trustee has the discretion to determine how trust income and capital are distributed among beneficiaries.
Discretionary trusts are widely used in Australia for:
- Family investment portfolios
- Property investments
- Business ownership
- Asset protection
- Succession planning
- Wealth management
One of the key advantages of discretionary trusts is the flexibility to distribute income to beneficiaries in a tax-effective manner.
How Are Discretionary Trusts Currently Taxed?
Under the current rules, trust income is generally taxed in the hands of the beneficiaries who receive the distribution.
For example:
A family trust earns $100,000 in net income.
The trustee may choose to distribute:
- $20,000 to one beneficiary
- $30,000 to another beneficiary
- $50,000 to a third beneficiary
Each beneficiary pays tax based on their own marginal tax rate.
This flexibility has made discretionary trusts a popular structure for many Australian families and business owners.
What Is Proposed to Change?
Under the proposed reforms, discretionary trust distributions would be subject to a minimum tax rate of 30% from the 2028–29 income year.
This means trust income distributed to beneficiaries may no longer benefit from lower personal tax rates below 30%.
The proposal is intended to reduce income splitting opportunities and align the taxation of trust income more closely with other business and investment structures.
Example: Current Rules vs Proposed Rules
Current Rules
A discretionary trust distributes:
- $20,000 to a university student beneficiary with little other income.
Under current tax rates, the beneficiary may pay little or no tax on part of that distribution.
Proposed Rules
If a 30% minimum tax rate applies:
- The same distribution could be taxed at a minimum of 30%, regardless of the beneficiary’s lower marginal tax rate.
As a result, some families may experience higher overall tax liabilities compared to the current system.
Who Could Be Affected?
The proposed changes may affect:
Family Trusts
Families using discretionary trusts to hold investments and distribute income among family members.
Property Investors
Trusts holding residential or commercial investment properties.
Small Business Owners
Businesses operating through discretionary trust structures.
Professionals
Medical practitioners, consultants, tradespeople, and other professionals using trusts for business or investment purposes.
Wealth Management Structures
Families using trusts as part of long-term succession and estate planning strategies
Why Is the Government Proposing This Change?
The Government has indicated that the proposal aims to:
- Reduce income splitting opportunities
- Improve tax system integrity
- Create greater consistency across tax structures
- Increase government revenue
- Simplify aspects of trust taxation
What About Existing Trusts?
Unlike some of the proposed property and capital gains tax reforms, the discretionary trust changes are expected to apply based on the timing of trust distributions rather than when the trust was established.
This means existing discretionary trusts could potentially be affected if they continue making distributions after the commencement date.
The final legislation and transitional rules will determine exactly how these measures operate.
Should Trust Owners Be Concerned?
At this stage, the proposal has not yet become law.
However, trustees and business owners should remain informed because discretionary trusts are commonly used throughout Australia for:
- Family wealth creation
- Asset protection
- Investment portfolios
- Business operations
- Intergenerational wealth transfer
Any changes to trust taxation could impact future tax planning decisions.
What Should You Do Now?
There is currently no need for panic or immediate restructuring.
However, trust owners should:
- Stay informed about proposed legislation
- Review their trust structure regularly
- Seek professional advice before making major decisions
- Consider future succession and tax planning strategies
Every trust is different, and the impact of the proposed reforms will depend on individual circumstances.
How Premier Tax & Bookkeeping Can Help
Trust taxation is one of the most complex areas of Australian tax law.
At Premier Tax & Bookkeeping, our experienced tax professionals can help you:
- Understand proposed trust taxation changes
- Review existing trust structures
- Assess potential tax impacts
- Plan for future legislative changes
- Maintain compliance with ATO requirements
- Develop tax-effective business and investment strategies
Whether you operate a family trust, investment trust, or business structure, our team can provide practical advice tailored to your circumstances.
Speak With a Trust Tax Specialist
If you currently operate a discretionary trust or are considering establishing one, now is the ideal time to review your structure and understand how proposed reforms may affect your future tax position.
Contact Premier Tax & Bookkeeping today for professional advice and tailored tax planning solutions.
Premier Tax & Bookkeeping – Helping Families and Businesses Navigate Complex Tax Changes with Confidence.
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