Minimum tax on discretionary trusts
2026–27 AUsTRALIAN TAX REFORM
Tax Advantage of Holding Assets in a Discretionary Trust
Discretionary trusts can reduce overall tax through income splitting. This occurs when the trustee allocates all or part of the trust’s income or capital gains to beneficiaries who are on lower marginal tax rates. By directing distributions to lower taxed individuals, the trust can achieve a lower combined tax outcome for the group. At the same time, the trustee typically retains practical control over assets that generate income or capital gains, such as residential or commercial properties held in the trust, even though the resulting distributions are made to beneficiaries for tax purposes.
Click here to view the example case 1
The Reform
The Government is introducing a 30 per cent minimum tax on discretionary trusts from 1 July 2028, meaning part of the tax advantage is removed because distributions to lower taxed beneficiaries will now be subject to at least a 30 per cent tax rate (FLOOR rate).
Click here to view the example case 2
Three-year Rollover Relief
Australia currently has approximately 840,000 discretionary trusts in operation.
1. From 1 July 2027 to 30 June 2030, restructuring from a discretionary trust into another entity type, such as a company or fixed trust, can occur without triggering CGT (capital gains tax) or other tax consequences.
2. On 1 July 2028, the 30 percent minimum tax commences. Discretionary trusts that have not restructured by this date will have their taxable income subject to the minimum 30 percent tax from this year onwards.
CASE STUDies
2026–27 CGT BUDGET MEASURES
CASE 1: Hold investment properties through a discretionary trust
● Two investment properties are held in a discretionary trust (i.e. a family trust with a corporate trustee), which derives rental income from these properties. The trust was established for the benefit of Jessie and Jessie’s immediate family members (spouse, father and mother).
(Discretionary means the trustee has the power to decide how income or capital is distributed among beneficiaries, rather than each beneficiary having a fixed entitlement.)
● After deducting all expenditures (finance, maintenance, depreciation, management, and other running costs), the trust has $53,000 of income before tax for the 2027–2028 income year. Taxable income = A$53,000.
● The beneficiary group comprises Jessie and Jessie’s immediate family members (spouse, father and mother).
● Jessie earns an annual salary of A$150,000 from full‑time employment.
● The remaining trust beneficiaries (spouse, father and mother) currently have no assessable income.
CASE 1: Trust income distribution strategy for tax minimisation
| Beneficiary group | Other taxable income | Distribution of trust taxable income (A$53,000) | Income tax payable on trust distribution |
| Jessie | A$150,000 | A$0 | A$0 |
| Jessie’s spouse | A$0 | A$18,200 | A$0 |
| Jessie’s father | A$0 | A$18,200 | A$0 |
| Jessie’s mother | A$0 | A$53,000 – A$18,200 – A$18,200 = A$16,600 | A$0 |
| The tax‑free threshold is A$18,200. Beneficiaries with no other taxable income can receive up to this amount of trust taxable income without incurring any tax payable. By splitting income across beneficiaries in the discretionary trust, rental income of A$53,000 from the investment properties becomes tax‑free. | |||
Source: Tax rates – Australian resident | Australian Taxation Office
CASE 2: Introduce a 30 per cent minimum tax on discretionary trusts from 1 July 2028
● Two investment properties are held in a discretionary trust (i.e. a family trust with a corporate trustee), which derives rental income from these properties. The trust was established for the benefit of Jessie and Jessie’s immediate family members (spouse, father and mother).
(Discretionary means the trustee has the power to decide how income or capital is distributed among beneficiaries, rather than each beneficiary having a fixed entitlement.)
● After deducting all expenditures (finance, maintenance, depreciation, management, and other running costs), the trust has $53,000 of income before tax for the 2028–2029 income year. Taxable income = A$53,000.
● The beneficiary group comprises Jessie and Jessie’s immediate family members (spouse, father and mother).
● Jessie earns an annual salary of A$150,000 from full‑time employment.
● The remaining trust beneficiaries (spouse, father and mother) currently have no assessable income.
CASE 2: Trust income distribution strategy for tax minimisation
| Beneficiary group | Other taxable income | Distribution of trust taxable income (A$53,000) | Income tax payable on trust distribution (new rule) | Income tax payable on trust distribution (old rule) |
| Jessie | A$150,000 | A$0 | A$0 | A$0 |
| Jessie’s spouse | A$0 | A$18,200 | A$18,200 × 30% = A$5,460 | A$0 |
| Jessie’s father | A$0 | A$18,200 | A$18,200 × 30% = A$5,460 | A$0 |
| Jessie’s mother | A$0 | A$53,000 – A$18,200 – A$18,200 = A$16,600 | A$16,600 × 30% = A$4,980 | A$0 |
| Under the old rule: The tax‑free threshold is A$18,200. Beneficiaries with no other taxable income can receive up to this amount of trust taxable income without incurring any tax payable. By splitting income across beneficiaries in the discretionary trust, rental income of A$53,000 from the investment properties becomes tax‑free. Under the new rule: Distributions to lower taxed beneficiaries will now be subject to at least a 30 per cent tax rate (FLOOR rate). Tax payable on rental income of A$53,000 from the investment properties = A$5,460 + A$5,460 + A$4,980 = A$15,900 | ||||
Disclaimer: This publication provides data and content of a general nature only and should not be construed as any form of advice. Readers are encouraged to seek appropriate professional guidance before acting on any information contained herein.
The content presented is intended for personal reference only and must not be used for commercial purposes. Commercial use requires prior approval—please reach out to us.
Copyright © 2026 www.upgradetier.space. All rights reserved. This publication and all associated content, including projections, data compilations, and analyses, are the exclusive property of www.upgradetier.space. Unauthorized copying, reproduction, modification, distribution, or republication of any part of this publication in any form, whether digital or print, is strictly prohibited.