Australian discretionary trust tax policy changes

The Australian Labor government has moved to refine its proposed taxation regime for discretionary trusts. Initially, the government considered a 30 per cent minimum tax on such trusts. To mitigate backlash, Treasurer Jim Chalmers introduced an adjustment allowing trusts to avoid this minimum tax if beneficiary splits are permanently locked in.

Under the proposed framework, which is intended for the 2028-29 tax year, primary production earnings within family business trusts would remain exempt. However, off-farm income—including rental property earnings, share dividends, and income from solar or wind energy infrastructure—would be subject to the new tax.

To address concerns from small businesses, the government proposed an elective payment regime. This would allow trustees to make tax-excluded distributions for fixed amounts to pre-nominated recipients, who would then declare those payments as taxable income. This measure is intended to provide flexibility for small businesses and families without requiring a formal entity restructure, while also addressing concerns regarding restructuring costs and potential state stamp duty liabilities. Critics have noted that these changes may complicate farm family succession planning and increase costs for tax advisors. 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.