Australian Government proposes 30% minimum tax for discretionary trusts

The Australian Federal Government has released draft legislation detailing a proposed 30% minimum tax on the taxable income of discretionary trusts, scheduled to take effect from 1 July 2028. The reform aims to align trust taxation more closely with the rates paid by individual wage earners.

To address concerns regarding restructuring costs and potential state stamp duty liabilities, Treasurer Jim Chalmers has proposed an elective payment regime. This allows trustees to make tax-excluded distributions for fixed amounts to pre-nominated beneficiaries, who would then declare these payments as part of their own taxable income. This measure is intended to provide flexibility for small businesses and families without requiring a formal entity restructure.

While primary production earnings within family business trusts are expected to be exempt, off-farm income—such as share dividends, rental property earnings, or income from renewable energy infrastructure—would be subject to the new tax. The government estimates that while hundreds of thousands of trusts may be affected, fewer than 10% of Australia's 2.7 million active small businesses will be impacted in any given year.