A reader asked us about discretionary family trusts, and it's a timely question. Changes to how these trusts are taxed are now before Parliament. Here is a plain summary of what has been proposed.
Where things stand
On 14 October 2026 the government introduced the Treasury Laws Amendment (Tax Reform No. 3) Bill 2026 into Parliament. It is not yet law, and the details may change as it goes through Parliament.
If passed as introduced, the main change would start on 1 July 2028.
What is proposed
Under the bill, a discretionary trust would pay a minimum tax of 30% on its taxable income. The trustee would pay this tax.
Beneficiaries, other than companies, would receive a tax offset for the tax already paid by the trustee. The offset is non-refundable. This means it can reduce the tax a beneficiary pays, but any amount left over would not be refunded.
What this could mean in practice
Three points have drawn the most attention from accountants and lawyers:
- Beneficiaries on lower tax rates. Many family trusts distribute to family members whose personal tax rate is below 30%, such as adult children studying or retired parents. Because the offset is non-refundable, trust income would generally be taxed at no less than 30%.
- Company beneficiaries. Many trusts distribute to a company, often called a "bucket company". Under the bill, companies would not receive the offset. Legal and accounting firms have pointed out that this income could be taxed once in the trust and again in the company.
- Restructuring and stamp duty. The bill offers federal tax relief for trusts that restructure. State stamp duty is a separate matter for each state government, and state exemptions have not been confirmed. The government has said it does not expect the election option (below) to trigger stamp duty.
What is excluded
The bill lists a number of exclusions, including:
- fixed trusts, charitable trusts and special disability trusts
- superannuation funds
- primary production income
- deceased estates
- testamentary trusts (trusts set up under a will) established for genuine testamentary purposes
- distributions to registered charities.
Some of these exclusions have conditions attached.
Other options in the bill
The bill also includes two further measures:
- Rollover relief between 1 July 2027 and 30 June 2030. This would allow a discretionary trust to restructure into another arrangement, such as a company or a fixed trust, with tax relief.
- An election option. A trust in existence on 1 July 2028 could make an election, nominating its beneficiaries and their shares up front. As long as it keeps distributing in those proportions, it would not be subject to the minimum tax.
What happens next
The bill will be debated in Parliament, and changes are possible before it becomes law. We will keep following it and will share any updates in future newsletters.
Sources
- Treasury Laws Amendment (Tax Reform No. 3) Bill 2026, introduced 14 October 2026 – aph.gov.au
- Income Tax Rates Amendment (Minimum Tax on Discretionary Trusts) Bill 2026 – aph.gov.au
- Second reading speech, Treasury Laws Amendment (Tax Reform No. 3) Bill 2026, 14 October 2026 – treasury.gov.au
This article is general information only. It doesn't take into account your personal circumstances and isn't financial product advice. Please speak with us before acting on anything here.
