Discretionary trusts have long been a popular vehicle for small businesses and family wealth, with the number of trusts in Australia more than doubling over the last 20 years. However, the 2026–27 Budget introduces a structural change designed to ensure these entities pay a consistent level of tax.
- 30% Minimum Tax on Discretionary Trust Taxable Income
The government is moving to simplify how trust income is taxed at the source.
– The News: From 1 July 2028, trustees of discretionary trusts will be required to pay a minimum tax of 30% on the trust’s taxable income.
– What it means: This effectively sets a “floor” for the tax rate on trust income, regardless of the individual tax brackets of the beneficiaries.
– The EMspire Tip: This may potentially bring forward the collection of tax, as trustees may be required to withhold and pay this 30% in a more timely manner than waiting for beneficiaries to lodge their individual returns.
- Non-Refundable Credits for Beneficiaries
To avoid double-taxation, the system will use a credit-based approach for distributions.
– The News: Individual beneficiaries will receive non-refundable tax credits for the 30% tax already paid by the trustee.
– The Impact: If a beneficiary’s personal tax rate is lower than 30% (for example, if they earn less than $45,000), they may end up paying a higher effective tax rate on that trust distribution than they would on other types of income.
- Expanded Restructure Roll-over Relief
Recognising that these changes might make a trust less attractive for some, the government is providing an exit path.
– The News: For three years starting 1 July 2027, expanded rollover relief will be available to help businesses restructure out of discretionary trusts.
– The Opportunity: This allows you to move your business or assets into another entity type, such as a company or a fixed trust, without triggering immediate tax consequences during the transition.
A Heads-Up on Exclusions It is important to note that this 30% minimum tax will not apply to all trusts. Specifically, primary production income, charitable trusts, deceased estates, and fixed testamentary trusts remain excluded from these new rules.
The team at EMspire Advisory are trusted, qualified Chartered Accountants, tax agents, and small business accountants. We work closely with our clients to achieve the best possible outcomes. To find out more, please contact us!
Please note that this information is not specific and is general in nature and cannot be relied on as advice. Please contact us for advice specific to you and your circumstances.