For decades, the discretionary family trust has been the default structure for Chinese and Asian families in Australia with a business, investment properties or shares. It offers flexibility, a degree of asset protection, and a way to keep wealth together across generations.
The Government now proposes a 30% minimum tax on discretionary trusts from 1 July 2028, and many families are being told to “restructure before 2028”. Before doing anything, understand what is proposed, what is not yet law, and what a restructure would cost beyond tax. This article explains the proposal in general terms and does not recommend any option.
What is proposed
On 14 October 2026 the Government introduced the Treasury Laws Amendment (Tax Reform No. 3) Bill 2026 and a related rates Bill into Parliament. As at October 2026 these Bills are not law. They need to pass both Houses, may be amended, and commentators have noted that the Government needs support from the crossbench in the Senate.
In broad terms, the Bills propose that from 1 July 2028:
- the trustee of a discretionary trust pays a minimum tax of 30% on the trust’s taxable income, as a top-up where tax on that income would otherwise be lower;
- individual beneficiaries receive a non-refundable tax offset for the tax the trustee paid, so the beneficiary pays more only if their own rate is higher than 30%;
- company beneficiaries receive no offset, which makes distributing to a “bucket company” more expensive; and
- franking credits on dividends received by the trust are applied against the trustee’s minimum tax, rather than flowing through to beneficiaries.
This is separate from the CGT reform already law, which replaces the 50% discount with indexation and a 30% minimum tax on gains accruing from 1 July 2027.
Who is excluded
According to the Government’s second reading speech, the proposal does not apply to, or excludes income of:
- fixed trusts, charitable trusts, special disability trusts and superannuation funds;
- deceased estates, and discretionary testamentary trusts set up for genuine testamentary purposes, with conditions, including limits on property added later and, for testamentary trusts created from 1 July 2028, a requirement that they can benefit only individuals and tax-exempt entities;
- primary production income, and certain income relating to vulnerable minors; and
- distributions to registered charities and deductible gift recipients, and to other tax-exempt entities up to a cap.
Most ordinary family trusts would be within the proposal.
Options under discussion
Each option has advantages and disadvantages, and none is right for everyone.
1. The proposed election for existing trusts
The Bills propose an election that would let an existing discretionary trust be excluded from the minimum tax if it commits to distribute income and capital to nominated beneficiaries in fixed proportions. Based on the published details, the election would be available only to trusts existing on 1 July 2028, made once in the 2028–29 income year, with limited ability to vary the proportions later (for example on a beneficiary’s death or a relationship breakdown). Departing from the nominated proportions would end the election and could lead to tax at the top rate for that year. The Government has said the election does not require a restructure and is not expected to trigger state stamp duty.
In practice, the election trades away the trust’s flexibility and locks in shares between children that may not suit the family in twenty years.
2. Moving to a company
Some families are considering moving business or investment assets from the trust into a company. A company pays tax at the company rate and can retain profits. But companies receive no CGT discount or indexation, shareholders are taxed again when profits are paid out, and Division 7A applies to loans to the family.
3. Moving to a fixed trust
A fixed trust, such as a unit trust where each family member’s share is set, is outside the proposed minimum tax. But fixed entitlements mean less flexibility, and units are property of the holder, which can be exposed to creditors, a bankruptcy or a property settlement in family law.
4. The rollover relief window
The Bills propose rollover relief from 1 July 2027 for three years, to help trusts restructure into another entity such as a company or fixed trust without immediate income tax or CGT. Based on the published details, the relief would generally defer, not remove, tax; it would be subject to strict conditions, including continuity of the family members involved and an “all or nothing” requirement to move the relevant assets; and it would require a once-only election. It would not cover GST or state stamp duty, which in some cases could be the largest cost of transferring land.
5. Staying as you are
Where beneficiaries are already on high tax rates, the minimum tax may change little, and keeping the current structure is also an option.
The non-tax consequences families often miss
A discretionary trust is not only a tax structure. Moving away from it changes who owns and controls family wealth.
- Asset protection. Beneficiaries of a discretionary trust generally do not own the trust assets. Shares in a company or units in a fixed trust are owned by individuals, and may be exposed if a family member is sued, becomes bankrupt or separates.
- Succession and control. In a discretionary trust, control passes through the appointor and the trustee company. In a company or fixed trust, it passes with the shares or units, under the Will. The family’s Wills, the company constitution and any shareholders’ or unitholders’ agreement must be updated together.
- Overseas family members. Fixing interests for children living overseas may raise foreign-person surcharges and withholding issues.
- Trust deeds. Some deeds may not allow the steps needed for an election or restructure. Deeds, appointor provisions and powers of variation should be reviewed early, before any vesting date.
Practical steps while the Bills are before Parliament
- Do not restructure on the basis of the proposal alone. Wait until the law is settled, unless your advisers identify a clear reason to act.
- Gather the trust deed, all variations, the appointor provisions and the trustee company’s records.
- Ask your accountant to model the minimum tax on your current distribution pattern.
- Compare the election, a company, a fixed trust and staying as you are, including duty and other costs.
- Note the key dates: rollover relief proposed from 1 July 2027, and the minimum tax and election proposed from 1 July 2028.
Frequently asked questions
Is the 30% minimum tax on discretionary trusts law?
No. As at October 2026 the Bills were introduced to Parliament on 14 October 2026 and have not passed. They may change before they become law. The proposed start date is 1 July 2028.
Are testamentary trusts affected by the 30% minimum tax?
Genuine testamentary trusts and deceased estates are proposed to be excluded, subject to conditions. Testamentary trusts created from 1 July 2028 would need to be able to benefit only individuals and tax-exempt entities, and later additions of unrelated property may be taxed.
Should I restructure my family trust in 2027?
That depends on your family’s circumstances, and on whether the Bills pass in their current form. Rollover relief is proposed from 1 July 2027 for three years, so there is time to plan. Restructuring can affect asset protection, stamp duty and succession, so get advice before acting.
Can my trust avoid the minimum tax without restructuring?
The Bills propose an election that would exclude existing trusts that commit to fixed distribution proportions among nominated beneficiaries from 1 July 2028. This would give up much of the trust’s flexibility.
How Chua Tan Associates can help
Whatever path a family chooses, the trust deed, the appointor, the trustee company, any new company or unit trust, and the family’s Wills must work together. Chua Tan Associates reviews trust deeds and the chain of control, prepares deeds of variation, constitutions and shareholders’ or unitholders’ agreements, and updates Wills and powers of attorney so the structure still reflects how the family wants wealth to pass. Justin Chua trained in accounting, is an Accredited Family Business Advisor and a Nationally Accredited Mediator, and we work alongside the family’s accountant, including with family members overseas, in English, Mandarin and Cantonese. Because the proposal is not yet law and every family is different, we recommend making any decision with advice from a qualified tax adviser working together with your lawyer.
Related reading
Chua Tan Associates acts for families, executors, trustees and their professional advisers in estate planning, estate administration and estate disputes in Australia and across borders. To arrange a confidential consultation, please contact our Melbourne office on +61 3 9602 3988 or submit an enquiry. Advice is available in English, Mandarin and Cantonese.
Justin Chua (蔡智勋), lawyer and mediator, Chua Tan Associates, Melbourne. General information only, not legal or tax advice.
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