The Discretionary Trust Tax rules have changed - your options have widened
- 8 September 2026
- by Tim Olynyk
- 7-minutes read
On 3 September 2026, the Federal Government released exposure draft legislation in relation to the introduction of the 30% minimum tax that is proposed to apply to discretionary trusts from 1 July 2028.
By way of background, the 30% minimum tax is designed to address income splitting – where discretionary trusts distribute profits to beneficiaries in lower tax brackets, reducing the group’s overall tax bill. The Government sees the proposed 30% minimum tax as limiting the tax advantages of discretionary trusts and levelling the playing field. However, feedback during consultation raised genuine concerns about restructuring costs for small businesses operating through discretionary trusts. The exposure draft released on 3 September reflects the Government’s response: new pathways that reduce or eliminate those restructuring costs while still achieving the policy intent.
Operate through a discretionary trust?
Talk to your BG Private advisor about which option suits your situation.
Which trusts are covered
The exposure draft confirms the proposed introduction of a minimum tax rate of 30% on the taxable income of discretionary trusts from 1 July 2028. Importantly, the exposure draft confirms that the following trusts will be excluded: (i) fixed trusts, (ii) special disability trusts, (iii) deceased estates, (iv) complying superannuation funds; and (v) certain testamentary trusts.
The exposure draft also confirms that where a discretionary trust pays the 30% minimum tax on its taxable income, beneficiaries that receive income from the trust will obtain a tax credit for the minimum tax already paid. However, the tax credit is non-refundable, meaning that if a beneficiary’s marginal tax rate is less than 30%, they will not receive a partial refund of the credit.
A significant caveat: where a trust subject to the 30% minimum tax distributes income to a company, the company will not be eligible to utilise the tax credit. This means income distributed from a discretionary trust to a company will have an effective tax rate of 60%. In practice, this would discourage discretionary trusts from distributing income to corporate beneficiaries after 1 July 2028.
Certain categories of income will be excluded from the new minimum tax regime. Primary production income; income distributed by a discretionary trust to a registered charity or deductible gift recipient; and dividend income, interest income or royalties distributed to a non-resident beneficiary subject to withholding tax.
The election mechanism – avoiding restructuring costs
This is the key change. The exposure draft has introduced a new concession available to discretionary trusts already in existence as at 1 July 2028.
A discretionary trust can now make an election which nominates specific beneficiaries and fixes the percentages of distributions it proposes to allocate to those beneficiaries going forward. To the extent the discretionary trust continues to distribute its income exactly in accordance with the election, the trust will not be subject to the 30% minimum tax.
The trade-off
If the discretionary trust distributes income to a different beneficiary or in percentages that differ from the election, the election is voided and the trust becomes subject to the 30% minimum tax going forward. This loss of flexibility is the price of avoiding restructuring. For many family businesses where distribution patterns shift year to year, this constraint may prove impractical.
Restructuring with tax rollover relief
If the election mechanism does not suit your structure, restructuring remains an option – and now with tax support. The exposure draft introduces a new form of tax rollover that allows discretionary trusts to transfer their assets without capital gains tax impediments to a new structure (such as a company or fixed trust) that is not subject to the 30% minimum tax.
While some taxpayers may wish to change their operating structure to avoid the 30% minimum tax, other factors need careful consideration. These include stamp duty costs (which vary by state) and loss of any preserved 50% CGT discount concessions already accrued on existing assets.
What this means for you
You have three concrete pathways: do nothing in which case the discretionary trust will be subject to the 30% minimum tax from 1 July 2028, make an election to lock in fixed distributions of beneficiaries, or restructure with rollover relief to move to a different entity structure. None of the pathways require you to act immediately – the 30% minimum tax does not apply until 1 July 2028, giving you time to evaluate costs and benefits. The decision turns on your specific situation: How do you typically distribute trust income? What assets does the trust hold? Is your distribution pattern stable, or does it shift year to year? Get those answers now, and you can move forward with confidence.
None of this needs to be navigated alone. The exposure draft closes gaps that were flagged during consultation, and Treasury has signalled more detail is coming. You have time to understand your position and choose the path that works best for your structure.
Questions about your discretionary trust and which option fits?
Please do not hesitate to contact Tim Olynyk on (03) 9810 0700.
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