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 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:
A minimum tax floor can reduce the ability to distribute income in a way that matches real-world circumstances, especially in years where:
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:
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:
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:
Practical advice: what to do now
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.
