Family trusts have been a cornerstone of wealth management for Australian families for decades. They’ve helped business owners split income, protect assets, and pass wealth to the next generation without unnecessary tax drag. But the rules are undergoing major changes in the 2026 federal budget.
Two dates sit at the centre of it all: 1 July 2027 and 2028. We’ve been counting these dates closely at Australian Business Magazine because the timing will impact the decisions business owners need to make.
To understand what those decisions may look like, this guide will explain which trusts are genuinely affected. It’ll also outline the real tax costs of restructuring and whether a family trust restructure makes sense for your setup.
Let’s begin by understanding how a family trust works and what exactly changed.
What Is a Family Trust, and How Does It Work?
A family trust is a discretionary trust where the trustee distributes net income among beneficiaries each year, with full flexibility over who receives what amount. That’s the core of how it works, and it’s also what separates it from a fixed trust or unit trust, where entitlements are locked in.
Each trust runs according to its trust deed. That sets the boundaries for:
- Distributions
- Names the beneficiaries
- Outlines what the trustee can and can’t do
In practice, income splitting has been the main drawcard. Directing trust income to family members on lower marginal rates cuts the group’s overall income tax bill considerably.
Discretionary trusts also offer genuine asset protection and a workable structure for succession planning. Under the current system, beneficiaries presently entitled to a share of trust income are taxed at their own marginal rates.
What Did the 2026 Federal Budget Change for Trusts?
The 2026 federal budget introduced three interconnected changes that directly affect how discretionary trusts are taxed. Each carries a different start date, and together they affect how trust income is distributed, capital gains flow, and corporate beneficiaries are treated.
For private groups and small business owners, this is how the ground has shifted.
The 30% Minimum Tax on Discretionary Trusts
From 1 July 2028, trustees must pay a minimum 30% tax on the trust’s total taxable income at the trustee level. Right now, discretionary trusts work as flow-through vehicles. Beneficiaries pay income tax at their own marginal rates, and the government gets a cut based on each person’s tax bracket.
The new minimum tax changes the taxation entirely. Individual beneficiaries still get a non-refundable credit for tax paid, but corporate beneficiaries get nothing.
The result is a 30% tax floor on all trust income, regardless of how distributions are made. It basically ends the income splitting strategies that used to reduce overall tax by thousands each year.
Capital Gains Tax: A New 30% Floor From 1 July 2027
From 1 July 2027, the 50% CGT discount (Capital Gains Tax) for individuals, trusts, and partnerships is replaced by cost base indexation. This is a separate measure to the income minimum tax (and it kicks in a full year earlier).
The new rules mean the minimum cent tax applies to real capital gains accruing after the effective date. Assets held before that date, however, are protected under existing rules, with gains up to 1 July 2027 still eligible for the CGT discount.
Bucket Company Strategy: What’s Changing
Corporate beneficiaries receiving trust distributions will get no credit for the 30% tax already paid by the trustee. That creates a double taxation risk.
From our calculations with trustees, effective rates can even reach up to 62.9% on profits ultimately distributed to individuals (that ceiling assumes the more conservative of two possible calculation methods).
Put simply, many traditional trust tax strategies, including the bucket company strategy, may no longer work under the proposed changes.
Does Your Family Trust Need to Restructure?
Not every family trust is affected equally. Several categories of trust and income types are excluded from the minimum tax. Across the businesses we’ve tracked over the years, the trusts most exposed are the ones built entirely around income splitting (especially to low-income family members).
Several trust types and income categories are entirely outside the scope of the proposed changes. Here’s what the exclusions cover:
- Fixed and Widely Held Trusts: Fixed and widely held trusts are fully excluded from the minimum tax. If your trust deed locks in beneficiary entitlements from the start, the way a unit trust does, the 30% floor doesn’t apply.
- Primary Production Income: Income earned from primary production activities is carved out of the minimum tax rules. Farming trusts and similar structures generating this type of income won’t attract the 30% trustee-level charge on that portion.
- Beneficiaries Already on 30% or Above: Where every beneficiary in a trust already pays tax at 30% or higher on other income, the minimum tax adds no extra burden. The 30% floor is already met through their marginal tax rates.
- All Discretionary Testamentary Trusts: Following the Prime Minister’s 18 June 2026 announcement, all discretionary testamentary trusts are exempt from the minimum tax. This applies if they are created for genuine testamentary purposes and income comes only from deceased estate assets.
- Trusts Used Purely for Asset Protection: Some discretionary trusts exist primarily for security and succession planning rather than income splitting. These structures may retain their current form without facing any meaningful additional tax penalty under the proposed changes.
- Small Businesses Paying Staff from the Trust: Salary and wages paid directly to employees of small businesses from the trust are exempt from the minimum tax calculation. Paying working family members at commercial rates instead of through distributions remains a viable approach.
In short, many trusts won’t need to do anything at all. Before acting on any restructure decision, it’s worth checking your trust deed carefully against these exclusions. In this case, a qualified tax adviser can tell you straight away which category your trust falls into.
What Are the Tax Costs of a Family Trust Restructure?
A family trust restructure can involve costs such as capital gains tax, stamp duty, professional fees, and compliance expenses depending on the changes made.
These costs mean restructuring a trust is never entirely tax-free. Below is a breakdown of the main tax costs related to a family trust restructure.
Capital Gains Tax on the Transfer of Trust Assets
Transferring assets out of a trust activates a CGT event because the ATO (Australian Taxation Office) treats the transfer as a disposal at market value. That means any gain embedded in those trust assets becomes assessable immediately, without the rollover.
Acting before the rollover window opens (on 1 July 2027) means bearing that full CGT cost with no relief available. The renewal defers income tax and CGT consequences on assets transferred to an eligible entity. However, the government is still finalising the eligibility conditions through consultation.
Stamp Duty Varies by State (and It Can Be Huge)
The Commonwealth rollover doesn’t bind state revenue authorities, so stamp duty applies separately in each jurisdiction. Land-rich trusts in Victoria, NSW, and WA face particularly significant stamp duty exposure on trust-to-company transfers.
A restructure that’s income tax neutral at the federal level can still attract substantial state-based costs. In some cases, those costs outweigh the tax savings from restructuring entirely. That’s why trustees should get state stamp duty advice well before any transfer of assets takes place.
Trust Restructure Rollover Relief: The Window
Expanded trust restructure rollover relief runs for three years: from 1 July 2027 to 30 June 2030. And the window is shorter than it looks on paper, given the time needed for valuations, financier consents, and state stamp duty applications.
The rollover itself is designed to reduce some of the tax barriers involved in restructuring. It covers income tax and CGT when transferring business assets from a discretionary trust into a company or fixed trust.
Family Trust vs. Corporate Structure: Which Fits Now?
Once the minimum tax applies, the tax rate gap between trusts and companies will close materially for many business owners. Companies will offer clean retained earnings, simpler access to debt financing, and full franking credit access (without the Division 7A complications that come with discretionary trusts).
The right fit depends on your asset profile, income type, and long-term goals. The table here compares both structures after the proposed changes take effect.
| Factor | Family Trust (Post-2028) | Company Structure |
| Tax rate on income | 30% minimum at trustee level | 25-30% depending on turnover |
| CGT discount on asset sales | 30% minimum tax on capital gains from 1 July 2027 | No CGT discount; taxed at full rate |
| Bucket company viability | Effectively ended; double taxation risk up to 62.9% | Not applicable |
| Asset protection | Strong; assets separate from personal liability | Moderate; director liability risk exists |
| Franking credits | Trustees must use credits to offset minimum tax | Fully available to shareholders |
| Admin and compliance costs | Moderate; annual trustee resolutions required | Moderate; ASIC (Australian Securities and Investments Commission) annual review fees apply |
| Suitability for retained earnings | Complex; Division 7A and UPE (Unpaid Present Entitlement) risks remain | Clean; retained earnings accumulate simply |
Neither structure wins outright. Discretionary trusts still carry genuine asset protection advantages. For families where all beneficiaries already sit at or above 30% in marginal rates, the minimum tax may add little practical burden.
Companies, on the other hand, suit businesses focused on retaining earnings and building long-term value inside a cleaner corporate structure. The right answer sits in the numbers specific to your trust, rather than in a general rule.
What Should Australian Business Owners Do Before 2028?
Regardless of whether a restructure is the right answer, business owners should review their trust structures, assess potential tax impacts, and seek advice before the new rules take effect. Timing and sequencing are just as important as the structure decision itself.
Here are some steps every trustee should act on before July 2028.
Review Your Beneficiary Distribution Strategy
We’ve observed that the trustees who handle tax reform best are the ones who model their specific numbers early, rather than waiting for the broader conversation to settle.
So start by mapping how the 30% minimum tax changes the outcome for individual beneficiaries currently receiving trust distributions.
Those already earning above $45,000 may be largely unaffected, which makes a full restructure unnecessary for some family groups. Paying working family members a salary from the beneficiary can also reduce taxable income subject to the trust minimum tax.
Get Asset Valuations Recorded Before July 2027
Assets held before 1 July 2027 and sold after that date require a formal market valuation at that date for CGT purposes (not a small task, but a necessary one given what’s at stake). For listed assets, the market price on that date applies directly.
Unlisted assets and property, though, need a formal independent valuation. Starting that process well ahead of the deadline avoids a last-minute rush. Plus, it gives you a clean cost base to work from going forward.
Don’t Act Before the Rollover Window Opens
Restructuring before 1 July 2027 means bearing the full CGT and stamp duty cost without any rollover protection (which defeats the purpose of restructuring in the first place).
The legislation hasn’t passed parliament yet, so irreversible structural decisions should wait for draft legislation and ATO guidance.
Not to mention, from 1 January 2027, the Australian Small Business and Family Enterprise Ombudsman will be available to help small businesses work through their restructuring options. They can be another source of guidance when assessing your next steps.
Rethinking Your Trust Before 2028 Arrives
The 2026 federal budget has fundamentally altered the trust tax planning conversation for Australian business owners. Not every trust needs to restructure, but each trust owner needs a clear picture of where they stand before July 2028 arrives.
Your next steps are simple:
- Talk to a qualified tax adviser
- Model your numbers
- Check your trust deed against the exclusions covered in this guide
For more on the 2026 budget changes and what they mean for Australian businesses, browse the latest articles on Australian Business Magazine. There’s plenty more to keep you across the details.
Frequently Asked Questions About Family Trust Restructures
These proposed changes have raised a lot of questions across the Australian business and legal community. Here are some common ones we’ve seen come up since the 2026 federal budget landed.
Are Charitable Trusts and Deceased Estates Affected by the Minimum Tax?
No, they’re not. Charitable trusts, deceased estates, and complying superannuation funds are all excluded from the proposed minimum tax entirely.
The rules are aimed specifically at discretionary trusts used for income splitting, rather than structures designed for estate administration, philanthropy, or retirement security.
If your trust falls into one of these categories, the proposed changes don’t apply.
Can a Discretionary Trust Convert to a Unit Trust to Avoid the Minimum Tax?
Converting to a unit trust is one option some trustees are exploring, and fixed unit trusts do appear excluded from the minimum tax. The catch is that converting a discretionary trust into a fixed trust carries resettlement risk.
The ATO may treat it as a disposal of assets, which activates CGT and potentially stamp duty.
Does the Double Taxation Risk Apply to All Corporate Beneficiaries?
It applies to any corporate beneficiary receiving distributions from a discretionary trust after 1 July 2028. Unlike individual beneficiaries, corporate beneficiaries get no non-refundable credit for the tax already paid by the trustee.
That’s what creates the double taxation exposure, and it’s one of the main reasons the bucket company model has become largely unworkable under the proposed rules.
Should I Wait for Draft Legislation Before Making Any Decisions?
For most trustees, yes. The proposed changes are not yet law, and major design details, including eligibility conditions for the trust rollover relief, are still subject to government consultation. So making irreversible decisions based on budget announcements alone carries real risk.
Disclaimer: This article is for general information only and does not constitute financial, tax, legal, or accounting advice. Everyone’s circumstances are different, and you should seek advice from a qualified accountant, tax adviser, or other professional before making any decisions. Australian Business Magazine (ABMAG) is not responsible for any actions taken based on the information in this article.
