The 2026 Federal Budget includes a major change for family groups and small businesses operating through discretionary (family) trusts: a 30% minimum tax on discretionary trusts from 1 July 2028.
The policy is framed as a fairness measure. But for many “mum and dad” businesses, the practical impact is likely to be felt through cash flow pressure, higher compliance costs, and reduced confidence.
What’s changing (in plain English)
Under the Budget summary:
- A 30% minimum tax will apply to the taxable income of discretionary trusts (unless higher rates apply).
- The trustee pays the tax, because the trustee controls distributions.
- Beneficiaries still declare their trust income in their own tax returns.
- Individuals and other non-corporate beneficiaries receive non-refundable credits for the tax paid by the trustee.
- Corporate beneficiaries do not receive credits, to prevent the minimum tax being undermined via refundable franking credits.
A quick clarification: this is not usually a literal double tax on the same income for individual beneficiaries, because the credit recognises tax already paid by the trustee. However, it can still feel like double handling because it adds a new tax layer at the trust level and increases reporting complexity.
Why this matters for small business
1) It reduces flexibility that many families rely on
Trusts are often used for legitimate commercial reasons, including:
- asset protection and risk management
- succession planning
- managing uneven or seasonal income
A minimum tax floor can reduce the ability to distribute income in a way that matches real-world circumstances, especially in years where:
- income is volatile,
- family members return to work or stop work,
- the business needs to retain cash to reinvest.
The Budget summary itself notes that discretionary trusts can allow lower tax outcomes through income splitting, and that Treasury analysis found families with discretionary trusts faced an average tax rate around 4 percentage points lower than similar-income families without a trust (2022-23). The reform is designed to narrow that gap.
For small businesses, the concern is that the policy may not neatly separate aggressive tax planning from ordinary family enterprise decisions.
2) It adds compliance obligations and professional fees
Under the new approach, trustees will be required to:
- calculate the minimum tax,
- report and pay it, and
- notify beneficiaries of entitlements and associated credits.
Large groups can absorb extra complexity. A small business with limited admin support often cant. More compliance means more time, more accounting cost, and more risk of inadvertent errors.
3) Bucket-company strategies are directly targeted
The Budget summary is explicit that corporate beneficiaries will not receive credits for tax paid by the trustee. This is intended to prevent using corporate beneficiaries and franking credits to avoid the minimum tax.
If your structure uses a corporate beneficiary (often called a bucket company), you should assume this change may materially affect your tax outcomes and planning options.
4) It can create cash-flow timing pressure
Even where the final tax outcome is similar, the mechanism matters. A trust-level minimum tax means tax is collected at the trust level first, and credits are then applied at the beneficiary level.
For many small businesses, the day-to-day issue is not just how much tax but when tax is paid and how predictable the cash flow is.
Who is excluded
The minimum tax will not apply to other trust types such as:
- fixed and widely held trusts
- complying superannuation funds
- special disability trusts
- deceased estates
- charitable trusts
Some income types are also excluded (including primary production income, certain income relating to vulnerable minors, amounts subject to non-resident withholding tax, and income from assets of certain testamentary trusts).
Rollover relief: helpful, but not a free pass
The Government proposes expanded rollover relief to assist small businesses and others to restructure out of discretionary trusts into other arrangements (such as a company or fixed trust). This relief is intended to provide expanded protection from income tax consequences (including CGT) and will be available for three years from 1 July 2027.
That’s positive. But restructuring still has real-world friction:
- bank facility reviews
- contract and supplier updates
- payroll/bookkeeping changes
- governance and documentation work
Practical advice: what to do now
- Get a structure review early (especially if you use corporate beneficiaries).
- Model the impact under a 30% minimum trust tax and compare to company/fixed trust alternatives.
- Don’t rush to restructure based on headlinesmake sure any change is commercially justified.
- Watch consultation outcomes, because key aspects (including collection mechanisms and rollover relief design) are still subject to consultation.
Bottom line
Even if the intent is fairness, the risk for small family businesses is a mix of reduced flexibility, higher compliance cost, and lower confidence. The best protection is early planning, clear modelling, and advice tailored to your structure.
FAQ
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What is the 30% minimum tax on discretionary trusts?
It’s a proposed rule where the trustee pays a minimum 30% tax on the trust’s taxable income (unless higher rates apply), starting 1 July 2028. -
Is the trust minimum tax a “double tax” on distributions?
Not usually for individuals, because non-corporate beneficiaries receive non-refundable credits for tax the trustee has paid. But it can increase admin and change outcomes in some structures. -
When does the 30% minimum tax on discretionary trusts start?
The Budget summary states it starts from 1 July 2028. -
Will all small businesses be affected?
Not necessarily. The Budget summary indicates many discretionary trusts may not pay additional tax in a given year, depending on distributions and beneficiary tax rates. -
Are any trusts excluded from the minimum tax?
Yes. The summary lists exclusions such as fixed and widely held trusts, complying super funds, deceased estates and charitable trusts, plus certain income exclusions. -
What happens if a trust distributes to a corporate beneficiary?
Corporate beneficiaries are assessed on the trust income they’re entitled to but do not receive credits for tax paid by the trustee, which is intended to limit minimum-tax avoidance. -
Can I restructure out of a discretionary trust without CGT?
The Budget summary proposes expanded rollover relief to support restructuring, available for three years from 1 July 2027 (details subject to consultation). -
What should small business owners do now?
Get early advice, model scenarios (including cash flow), review corporate beneficiary use, and plan ahead for possible restructure or additional reporting.
