2026-27 Federal Budget

What the Budget means if you run a business or hold investments through a trust

From 1 July 2028, trustees of discretionary trusts will pay a minimum tax of 30% on the trust’s taxable income. Bucket company strategies are effectively ended. Three-year rollover relief is available to restructure into a company or fixed trust.

Starts

1 July 2028

Two years to plan. Most clients shouldn’t restructure until the legislation is finalised.

The new rate

30% minimum

On taxable income of discretionary trusts. Beneficiaries get a non-refundable credit — corporate beneficiaries don’t.

Restructure window

3 years

CGT-free rollover relief into a company or fixed trust, from 1 July 2027 to 30 June 2030.

First question

Does this actually apply to my trust?

The new tax targets discretionary trusts specifically. Several other trust types, and certain types of income, are excluded. Here’s where each common situation lands.

Discretionary (family) trust running a business

The core target of the change. The 30% minimum tax applies to the trust’s taxable income from 1 July 2028, regardless of how distributions are made.

×Affected

Discretionary trust holding passive investments

Same treatment as a trading trust. The 30% minimum tax applies to all taxable income earned by the trust, including investment income.

×Affected

Discretionary trust deriving primary production income

Primary production income is excluded from the minimum tax. Non-PP income earned by the trust is still affected.

∼Partial

Fixed unit trust

Fixed and widely-held trusts are excluded entirely from the minimum tax. Unit trusts where entitlements are genuinely fixed are not affected.

✓Unaffected

Testamentary trust existing at 12 May 2026

Grandfathered. Income from assets of discretionary testamentary trusts already in existence at 7:30pm AEST on 12 May 2026 is excluded.

✓Unaffected

Testamentary trust created after 12 May 2026

New testamentary trusts created from estates of those who die after announcement are subject to the minimum tax — a significant change for Will planning.

×Affected

SMSF, complying super fund

Complying superannuation funds are excluded entirely. SMSFs are not affected by this change at all.

✓Unaffected

Special disability trust, charitable trust, deceased estate

All excluded from the minimum tax. These trust types continue under existing rules.

✓Unaffected

How the tax works

A 30% floor — not a cap

The trustee pays a minimum 30% tax on the trust’s taxable income. Beneficiaries still report distributions and get a non-refundable credit. The result is that the effective rate on trust income can’t drop below 30%.

How it works 01

Trustee pays first

From 1 July 2028, trustees of discretionary trusts will calculate the trust’s taxable income and pay tax at a minimum of 30%. If a higher rate would otherwise apply (e.g. for undistributed income to non-residents), that higher rate continues.

Franking credits received by the trust must be used first to pay the minimum tax — before being passed to beneficiaries.

How it works 02

Beneficiaries get a credit — but it’s capped

Individual beneficiaries (other than corporate beneficiaries) receive a non-refundable credit for the trustee’s tax. The credit can reduce their personal tax to zero, but it can’t generate a refund.

The practical effect: a beneficiary on a 0% or 16% marginal rate effectively pays 30% tax on the trust distribution — the same as the trustee paid — with no way to claim the difference back.

How it works 03

Corporate beneficiaries get no credit

This is the most significant change for clients using bucket companies. From 1 July 2028, a corporate beneficiary that receives a distribution from a discretionary trust receives no credit for the trustee’s 30% tax.

Combined with the standard 25% company tax that the bucket company would pay on the distribution if it weren’t already taxed, the existing strategy collapses.

How it works 04

Excluded income is excluded

Several specific types of income are not subject to the minimum tax even if the trust is a discretionary trust:

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 announcement.

The biggest single change

What this means for bucket companies

The trust-to-company distribution strategy — cap tax at 25% by streaming profits to a bucket company — is the single most affected planning technique. Here’s the before and after.

$100,000 of trust profit distributed to a bucket company

How the bucket company strategy used to work — and what changes

Before 1 July 2028 Old rules

Trust earns $100,000 and distributes it to a bucket company. The bucket company pays 25% tax on the distribution (small business rate), leaving $75,000 retained in the corporate beneficiary.

Profit stays at the 25% corporate rate indefinitely. When eventually paid out as a franked dividend, the franking credits flow to the ultimate shareholder, so the total tax cost is determined by the shareholder’s marginal rate when the funds finally leave the structure.

Net tax: 25% while held in the bucket company, with timing flexibility for when the personal tax is paid.

From 1 July 2028 New rules

Trust earns $100,000. The trustee pays 30% minimum tax ($30,000) before the distribution. The bucket company then receives $100,000 of trust distribution but gets no credit for the $30,000 the trustee paid.

The bucket company is then taxed on the $100,000 distribution at the company rate. The same income is effectively taxed twice — once at the trust (30%), once again at the company (25%).

Effective tax: well above 30%. Bucket companies as a tax minimisation tool no longer work.

Existing bucket companies with prior-year UPEs

The Budget papers don’t address how the new rules interact with existing unpaid present entitlements (UPEs) already owed to corporate beneficiaries from earlier years. The legislation will need to clarify whether UPEs created before 1 July 2028 remain under the old treatment or are caught by the new rules.

For most clients with material existing UPEs, this is a watch-and-wait item until the draft legislation lands — restructuring now risks crystallising costs unnecessarily.

Worked example

A typical client comparison: trust vs company

A small-business owner earning $300,000 a year. Comparing the same income through a discretionary trust before and after the change — and against operating through a company instead.

Kurt — family business through a discretionary trust

$300,000 of business income, four family beneficiaries

Kurt pays himself $100,000 as a salary (working in the business) and the trust has $200,000 of remaining taxable income. He distributes $50,000 to each of four extended family members on no other income, keeping the cash in the business.

Before 1 July 2028 Old rules

Kurt’s salary tax ($100k)	$22,567
Beneficiary 1 ($50k, no other income)	$4,861
Beneficiary 2 ($50k)	$4,861
Beneficiary 3 ($50k)	$4,861
Beneficiary 4 ($50k)	$4,861
Total tax paid by family	$42,011

From 1 July 2028 New rules

Kurt’s salary tax ($100k)	$22,567
Trustee min tax on $200k @ 30%	$60,000
Beneficiary 1 ($50k) net tax	$0
Beneficiary 2 ($50k) net tax	$0
Beneficiary 3 ($50k) net tax	$0
Beneficiary 4 ($50k) net tax	$0
Total tax paid by family	$82,567

The family pays $40,556 more tax under the new rules while distributing exactly the same income to the same people. The beneficiaries on $50k each previously paid less than 10% tax; now their distributions are effectively taxed at the 30% floor. If Kurt instead restructured into a company paying himself $100,000 salary and retaining $200,000 at the 25% small business rate, the family would pay around $72,000 in total — about $10,500 less than continuing as a trust.

The way out

Three-year rollover relief to restructure

To make restructuring viable, the Government will provide CGT-free rollover relief for three years — from 1 July 2027 to 30 June 2030 — for taxpayers wanting to move out of a discretionary trust into a company or fixed trust.

From 1 July 2027

Rollover window opens. Eligible taxpayers can restructure from a discretionary trust into another entity type (typically a company or fixed trust) without triggering CGT or other tax consequences.

1 July 2028

30% minimum tax starts. Trusts that haven’t restructured by this date pay the minimum tax on their taxable income from this year onwards.

By 30 June 2030

Rollover window closes. Restructures completed after this date no longer get the concessional CGT-free treatment.

From 1 January 2027

ASBFEO advisory service. The Australian Small Business and Family Enterprise Ombudsman will be funded to help small businesses understand their restructure options. ASIC will support incorporation processes.

Restructuring isn’t automatic, and it isn’t always the right call

Moving out of a trust is a meaningful structural change. The benefits of the trust form — asset protection, flexibility for changing family circumstances, ability to stream income to genuinely different beneficiaries year-to-year — don’t go away just because the tax efficiency reduces.

A company offers the 25% rate but loses the streaming flexibility and changes the asset protection profile. A fixed trust preserves trust structure but locks in beneficial entitlements. The right choice depends on your business, your family, your time horizon and your succession plans — not just the headline tax rate.

What you should do

Practical steps over the next 18 months

Restructuring decisions shouldn’t be rushed — the legislation isn’t finalised, and a wrong move is hard to reverse. But several preparation steps make sense now.

Don’t restructure yet

This is consultation-stage policy, not legislation. Key details — particularly around bucket company UPEs, franking credit interaction, and the rollover scope — will be settled later. Restructuring on the strength of the announcement risks an irreversible decision based on incomplete information.

If you use a bucket company — book a planning meeting

You don’t need to act on it yet, but you do need to understand the maths for your specific situation. The size of your existing UPEs, your distribution patterns and your family’s tax positions all change the answer.

If you distribute to low-MTR beneficiaries — rerun the numbers

Trusts that stream income to a non-earning spouse, adult children at uni, or retired parents have relied on those beneficiaries’ lower marginal rates. Those distributions will effectively be taxed at 30% from 1 July 2028 with no rebate available.

If your trust holds primary production assets — confirm the carve-out applies

Primary production income is excluded, but non-PP income earned by the same trust is still affected. Mixed-use trusts — farming plus investment income, for example — will need separate analysis.

If you don’t have a Will with testamentary trust provisions — consider one now

Testamentary trusts existing at 12 May 2026 are grandfathered. New testamentary trusts from estates of those who die after announcement will be subject to the minimum tax. There’s now a real planning advantage to having a Will with testamentary trust provisions in place.

Watch for the draft legislation

The Government has indicated consultation will continue on the detail. We’ll be tracking the legislation as it develops and contacting affected clients when meaningful action becomes possible.

One thing to keep in mind

The trust minimum tax is an announcement, with consultation continuing. The 1 July 2028 start date and 30% rate could be adjusted, scope could change, and several mechanics — particularly around existing bucket company UPEs — remain to be settled. Smaller planning steps make sense now, but irreversible decisions should wait for legislation.

Mastin Harris Family Wealth Protection

The testamentary trust planning window is open — for now

Testamentary trusts in existence at 12 May 2026 are grandfathered from the new tax. New ones created from future estates are not. For clients without a current Will, or whose existing Will doesn’t include testamentary trust provisions, there’s a real and time-limited advantage to acting before the next succession event. We can help.

Learn more →

Other Budget changes that might apply to you

Trust clients usually fit more than one of these

Most trust clients also run a business, hold investments or have an SMSF. Other Budget changes interact with the trust changes in ways worth understanding.

If this applies

I run a small business

$20,000 instant asset write-off made permanent, loss carry-back returns, PAYG flexibility.

Read about small business changes If this applies

I own (or am buying) an investment property

Negative gearing limited to new builds from 1 July 2027, plus the end of the 50% CGT discount.

Read about property changes If this applies

I hold shares or other investments

The 50% CGT discount is being replaced with indexation and a 30% minimum tax on real gains.

Read about CGT changes If this applies

I have a Self-Managed Super Fund

Division 296 from 1 July 2026 affects balances over $3 million. SMSFs are exempt from the trust minimum tax.

Read about SMSF changes If this applies

I’m a PAYG employee

Two more rate cuts plus a $1,000 instant deduction and the new $250 Working Australians offset.

Read about employee changes If this applies

I’m retired or close to it

Private health insurance rebate cut for 65+, CGT changes, pension supplement updates.

Read about retirement changes

Get the structure right for your circumstances — not just the headline.

The trust minimum tax is a meaningful change, but the right response depends on your business, your family, your succession plans and your time horizon. We help clients understand the options before they need to choose — not after.

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