Proposed 30% minimum tax on family trusts: what it means for SMEs
If your business operates through a family trust (technically, a discretionary trust), you’ve probably seen the headlines about a proposed 30% minimum tax. Here is what’s actually being proposed, what’s still uncertain, and how to prepare without rushing into decisions that can’t be undone.
Where things stand
On 14 October 2026, the government introduced legislation proposing a new minimum tax on discretionary trusts. The minimum tax is proposed to apply from 1 July 2028, with the trustee responsible for paying it. Beneficiaries other than companies would receive a non-refundable tax offset for their share of the trust’s minimum tax.
This is a bill, not law. It is subject to parliamentary consideration, including a Senate inquiry, and the Opposition has said it opposes the tax. The details may change before anything is passed.
Why it’s being proposed
The government’s case is that discretionary trusts have more than doubled in 20 years to over 800,000, and that families using them paid an average tax rate around 4 percentage points lower than similar-income families without one. It says the aim is to align the tax on income from assets with the tax on income from work.
Critics see it differently. Business groups and the Opposition argue that trusts are used for legitimate reasons such as asset protection and succession planning, and that the change adds cost and complexity for family businesses.
Who is affected, and who isn’t
The government estimates that more than 90% of small businesses won’t be affected in any given year. Small business groups have raised concerns about the potential impact on family firms, so treat headline numbers with caution. The actual impact will depend on each business’s circumstances and the final legislation.
Among the trusts and income categories proposed to be excluded from the minimum tax are fixed trusts, charitable trusts, special disability trusts, superannuation funds, qualifying primary production income, and certain deceased estates and testamentary trusts established for genuine testamentary purposes. Distributions to registered charities and deductible gift recipients are also proposed to be exempt, subject to the relevant conditions.
The precise eligibility requirements will matter, particularly for trusts that rely on an exemption.
Your three broad options
Stay as you are. You may be able to reduce the impact by reviewing how income is distributed or, if the business operates through the trust, paying a reasonable wage to beneficiaries who work in it. Any changes should reflect genuine business arrangements and comply with the relevant tax rules.
Restructure. Income tax roll-over relief is proposed from 1 July 2027 to 30 June 2030 for eligible trusts moving into another entity, such as a company. However, state and territory duties may still apply, so the full cost needs to be checked before any move.
Elect to become an “excluded election trust”. Under this proposed option, a trust that makes an eligible election and meets the requirements for distributions to nominated beneficiaries may be excluded from the minimum tax. The trade-off is that the election could limit flexibility in how income is distributed in the future. The precise conditions and their practical implications should be reviewed before making this choice.
No option is automatically best. The right answer depends on your trust deed, your family circumstances, whether you retain profits in the trust, and who may need to benefit in future.
What we don’t know yet
Treasury estimates that restructuring a family business can cost between $9,536 and $23,436, but actual costs vary with the assets held, any licences or approvals, and state or territory duties.
CPA Australia has pointed out that 12 rules shaping these choices are left to ministerial instruments that have not yet been released. This is a strong reason to avoid committing to a new structure before the details are clear.
The interaction with the proposed Division 7A reforms on unpaid present entitlements still needs to be considered. This is particularly relevant if your trust has company beneficiaries.
The final eligibility requirements for exemptions, including those relating to testamentary trusts, will be important. Some commentary has raised concerns that the wording of a will may affect eligibility, so older estate plans should be reviewed against the final rules rather than assumed to qualify.
What to do now (and what not to)
Don’t rush into restructuring. The rules aren’t final, and some choices can be difficult or costly to reverse. However, you can start assessing your options now.
Gather your documents. Trust deed, list of beneficiaries, details of any company beneficiaries, and a record of how income has been distributed in recent years.
Check your will. If a testamentary trust is part of your estate plan, the wording may matter under the proposed exemption rules. Older wills should be reviewed once the final eligibility requirements are clear.
Think about the next few years. Are you planning to sell, bring in family members, or keep profits in the business? Each plan points toward a different option.
Talk to us early. We’d rather walk through your numbers now than make a rushed decision closer to the proposed start date.
Dates to watch
13 November 2026: Senate Economics Legislation Committee due to report
1 July 2027: Proposed roll-over relief opens
1 July 2028: Proposed minimum tax starts
30 June 2030: Proposed roll-over relief closes
These dates reflect the current proposals and parliamentary timetable and may change as the legislation progresses.
We’ll keep our clients updated as the bill moves through Parliament.
Want to talk it through? Contact ZT Partners to review how your trust may be affected.
This article is general information only and is not tax or legal advice. The legislation is a bill that may change. Please speak with your registered tax agent or adviser about your circumstances.
