Proposed tax changes: 30% minimum tax on discretionary trusts explained

Families using discretionary trusts are about to face an important choice. Treasury has released draft legislation regarding the 30% minimum tax on discretionary trusts, confirming the shape of a reform first flagged in the Budget. While the measure is not yet law, consultation closed on 18 September 2026, and the Government has indicated it intends to pass the legislation before the end of the year.

How the Tax Would Work 

From 1 July 2028, a 30% top-up tax may apply at the trustee level to the income of affected discretionary trusts. Because individual beneficiaries would receive only a non-refundable credit, the measure has most effect where income would otherwise be taxed below 30%. Fixed trusts, superannuation funds, charitable trusts and deceased estates are excluded, as is income of existing genuine testamentary trusts. 

Trusts distributing mainly to individuals taxed at or above 30% may see little change, but trustees relying on lower-taxed or corporate beneficiaries would need to consider three broad paths.

Weighing the Three Paths 

The starting point is whether the trust needs to change at all, as preserving flexibility may outweigh a small tax exposure where beneficiaries are already taxed at or above 30%. 

For example, Rebecca’s discretionary trust distributes to a bucket company each year, so continuing as usual would see that income taxed twice, with no credit in the company’s hands for the tax already paid. Making the election would leave the company taxed only once, although the trust’s distributions to the company would be locked in and could no longer vary from year to year. Restructuring would result in the trust’s assets moving out of the regime altogether, but the stamp duty payable upon transfer may outweigh the tax saved.

The Election in Practice 

The election is a one-off decision, available only during the 2028–29 income year. Nominating a bucket company depends on its shareholders having fixed rights to income and capital, so a company whose directors can choose which share class receives dividends may not qualify, an arrangement that is common in many family trust structures. 

Restructuring may suit families looking for a more permanent answer, with assets moved into a company or fixed trust and rollover relief covering income tax, including capital gains tax, but not state and territory stamp duty. The relief may also be reversed if the new structure becomes discretionary within around four years. The Government has said the election is expected to avoid stamp duty, although some commentators expect the states may take a different view. 

Importantly, the two options are mutually exclusive, and choosing the restructure rules out the election even if the restructure is never completed in practice. 

Start Planning Now 

No single path suits every trust. The right choice depends on how the trust has been used historically and whether annual discretion has been genuine or a formality. 

Clients with discretionary trusts, particularly those with bucket company beneficiaries, may wish to begin reviewing their position now. Talk to your adviser about how the draft measure could apply to your structure, and which path deserves closer attention before the rules are settled.