Date: 12 November 2026
Discretionary trust changes: what could the proposed 30% minimum tax mean for you?
By Carol Halton and Ryan Pinkerton, Roberts + Morrow – SMSF Specialist Advisors
There has been plenty of discussion recently about proposed changes to the way discretionary trusts are taxed.
For families and business owners who have used a family trust as part of their financial structure for many years, the announcements have understandably raised a few questions.
What exactly is changing? Will everyone with a family trust pay more tax? And, perhaps most importantly, do you need to rethink your existing structure?
We recently sat down with Sophie on Leave It to the Accountants podcast to unpack what we know so far.
What is changing for discretionary trusts?
Traditionally, one of the features of a discretionary, or family, trust has been its flexibility. Trustees can distribute income between eligible beneficiaries, which may include family members on different marginal tax rates.
Under the proposed reforms, discretionary trusts would instead be subject to a minimum 30% tax on their net income, including income such as rent, dividends and capital gains.
The trust would pay the 30% tax before distributing income. Beneficiaries would then include their distribution in their assessable income, with a non-refundable tax offset recognising the tax already paid by the trust. In effect, the proposed reforms are designed to ensure trust income is subject to an effective minimum tax rate of 30%.
Does that mean everyone with a family trust will pay more tax?
Not necessarily.
The greatest impact is likely to be where trusts are currently distributing income to beneficiaries on lower tax rates, such as a non-working spouse or adult children who are studying.
For beneficiaries already paying tax at higher marginal rates, the difference may be less significant because additional tax is already payable at the beneficiary level.
Company beneficiaries also require particular attention. Under the proposal discussed in the podcast, companies would not receive the same offset, potentially resulting in tax being paid in the trust and again by the company receiving the distribution.
For families using a company as a “bucket company”, that’s an area worth reviewing
Are there any exemptions?
The reforms are focused on discretionary trusts, so a number of other structures have been identified as being outside the proposed rules.
These include fixed trusts, charitable trusts, special disability trusts and self-managed super funds (SMSFs). Primary production income and legitimate testamentary trusts have also been flagged as exemptions under the proposal discussed in the podcast.
For our primary production clients, that distinction is particularly important.
But one of the messages we kept coming back to during the podcast was simple: read the deed.
Just because a trust is described as a fixed trust doesn’t necessarily mean there aren’t provisions within the deed that provide some discretion. It is important to review the actual document and understand how the trust operates.
I’ve had a family trust for 20 years. Do I need to change it?
This is where individual advice becomes particularly important.
There isn’t going to be a one-size-fits-all answer.
One possible option discussed in the podcast is effectively converting a discretionary trust into a fixed arrangement. This could allow assets to remain within the trust, but would mean giving up the flexibility to decide how income is distributed between beneficiaries each year.
Another option may be restructuring and transferring assets into a different entity, such as a company or individual ownership.
Proposed rollover relief could provide a window to restructure without immediately triggering capital gains tax, with the podcast discussing a three-year period through to 30 June 2030. However, other costs and taxes, including stamp duty, may still need to be considered.
So, what should you be doing now?
Our biggest message is: don’t make a decision based on the headline tax rate alone.
A family trust may exist for reasons beyond tax. Asset protection, succession planning, control and the ability to transfer wealth between generations can all form part of the picture.
If you already have a trust, now is a good opportunity to understand how it is being used, check the trust deed and consider how the proposed reforms could affect you.
With the rules around trusts changing, business owners and families may also need to take a step back and consider where their wealth and assets are best held. For some, that may include looking at the role an SMSF plays alongside a family trust or company.
An SMSF may suit certain long-term, income-producing investments being held for retirement, while a trust may continue to serve important purposes around asset protection and succession. A company may be appropriate for an operating business where profits are being reinvested or retained as working capital.
There are pros and cons to each. The right structure will depend on what you’re trying to achieve, how long you plan to hold an asset, whether you need access to the capital and how each structure fits into your broader financial position.
Click here for our next article, we’ll take a closer look at what the latest reforms could mean specifically for super and SMSFs.
General information only. This information does not constitute personal financial, taxation or legal advice.
By Carol Halton and Ryan Pinkerton, Roberts + Morrow – SMSF Specialist Advisors. Learn more about these proposed changes on the latest Roberts + Morrow podcast, Leave it to the Accountants.
