The proposed 30% minimum tax on discretionary trusts is not expected to commence until 1 July 2028, leaving time for considered planning rather than immediate restructuring.
Testamentary trusts have been excluded from the reforms, preserving their value for estate planning and intergenerational wealth transfer.
For many families, the key question is not whether to abandon a trust, but which assets should continue to sit within it and which may warrant a different ownership structure.
If your family uses a discretionary trust and a bucket company, the post-Budget headlines have been difficult to ignore: "30% minimum tax", "double taxation", and warnings of effective rates above the top marginal rate. For families that hold investments through a discretionary trust and distribute surplus income to a corporate beneficiary, the natural question is whether a structure built over many years is about to become a liability.
The answer is: not necessarily. The position is more nuanced than the headlines suggest. For many families, the starting point should not be to dismantle the trust, but to understand what problem the proposed rules are trying to solve, what assets are affected, and what changes may be available once the legislation is clearer.
Before turning to tax, it is worth remembering why these structures exist. A discretionary trust is often established during life or under a Will to protect assets from business risk, creditor claims or relationship breakdown, and to help wealth pass between generations in a controlled and flexible way. Tax efficiency has often been a benefit, but it is rarely the only reason the structure exists. That matters. The Budget may change how trusts are taxed, but it does not remove their asset protection and succession planning value. In many cases, the better question is how to preserve those benefits while reducing exposure to the new tax cost.
On 12 May 2026, the Government announced that, from 1 July 2028, discretionary trusts would be subject to a 30% minimum tax on taxable income, assessed at the trustee level. That is a significant shift from the current flow-through model, where beneficiaries are generally assessed on trust income at their own rates.
Importantly, this remains a proposal. Draft legislation has not yet been released, and key design features – including the treatment of franking credits, loss beneficiaries, and the announced rollover relief – are still to be settled through consultation. The direction of travel is clear enough to justify planning, but not clear enough to justify rushing into transactions.
One aspect of the original Budget announcement caused particular alarm: the suggestion that discretionary testamentary trusts would be caught by the new minimum tax, at least for trusts created after Budget night.
That concern has since been resolved with the Government subsequently confirming that income from all testamentary trusts (including future discretionary testamentary trusts) will be exempt from the minimum tax so long as distributions are not made to corporate beneficiaries. This is a significant and welcome clarification. Testamentary trusts remain a highly effective vehicle for estate planning and intergenerational wealth transfer, and their income-splitting advantages for individual beneficiaries are preserved.
If your estate plan includes a testamentary trust or if you have been putting off updating your Will because of uncertainty about this, that uncertainty has now been lifted. The ordinary (inter vivos) family trust is the target of the reforms. Testamentary structures are not.
The traditional arrangement is familiar. A trust earns income, distributes it among family members where appropriate, and may distribute surplus income to a corporate beneficiary taxed at 30%. That company then retains profits for reinvestment or pays fully franked dividends later. The structure has operated largely as a tax deferral mechanism.
The proposed rules challenge that deferral. If the trustee must pay a 30% minimum tax before income is distributed, the outcome for a corporate beneficiary may be poor if the company does not receive credit for tax already paid by the trustee. The same income could be taxed at the trust level and again at the company level. Similar concerns arise where income is distributed to an entity with losses: the minimum tax may be paid before the losses can do any useful work.
Franking credits may soften the position in some cases, but that depends on the final design. A franked dividend received by a trust may interact differently with the minimum tax from ordinary trust income or capital gains. Until the legislation explains how credits are applied, refunded or wasted, modelling should be treated as indicative only.
In many cases, the issue is not the existence of the trust or the company, but the pathway through which income flows between them. That distinction is important because it opens the door to a considered review, rather than a blanket conclusion that all trusts should be wound up.
One option Cameron Harrison is already modelling is a carefully structured reversal of the traditional income pathway. Instead of the trust earning income and distributing surplus down to a corporate beneficiary, selected income-producing assets may be held in a company, with the trust retained above that company as shareholder, controller or succession vehicle. The company becomes the first taxing point; profits may be retained for reinvestment or, when appropriate, returned through franked dividends.
This is deliberately different from a full unwind. The family group may preserve the trust's asset protection and succession role, while changing which entity earns the income. If franking credits are recognised in the expected way, the structure may reduce the risk of the same income being taxed once at trustee level and again at company level. The detail still turns on the final legislation, the particular asset and the family's objectives.
The reversal will not suit every asset. It may be worth modelling for income-producing portfolios or assets intended to fund reinvestment over time. It may be less attractive where the asset is low-yielding, carries a large unrealised gain, would trigger stamp duty on transfer, or needs the continuing flexibility of discretionary trust ownership. Existing loans, unpaid present entitlements and Division 7A exposure also need checking.
Other paths remain available. A fixed trust may be discussed in some cases, but the deed, beneficiary rights and control arrangements all matter. Personal ownership may be simpler, but can weaken asset protection and succession planning. The value in the review is to identify which assets are candidates for a flip, which should stay put, and which decisions should wait.
The announced three-year rollover relief window from 1 July 2027 may be important, but it is not a green light for every transfer. Its scope is unsettled, and stamp duty remains a separate state-based issue, particularly for property. The work now is to have the options mapped so decisions can be made quickly once the rules are confirmed.
Rather than moving immediately to a nominated structure, families should use the period before 1 July 2028 to work through practical questions.
Which assets produce regular income, and which are mainly capital growth assets?
Which assets carry large unrealised gains?
Would stamp duty arise on a transfer?
Which beneficiaries are expected to receive income over time?
What asset protection or succession objectives must be preserved?
Are there loans, unpaid present entitlements or Division 7A issues that already need attention?
The answers may point in different directions for different assets. Listed shares, investment property, private business interests and cash reserves do not need to be treated the same way. Nor do all families have the same tolerance for tax cost, complexity, control and flexibility. A good review should leave room for the final legislation and should avoid locking in an outcome before the rules are fully known.
Any restructure will carry trade-offs. Moving assets can defer, but not eliminate, capital gains tax. A company may not access the same capital gains tax concessions as individuals or trusts. Income held in a company is less flexible than income distributed through a trust. Lower-income beneficiaries may have been better off under the old rules. Administrative complexity, compliance costs and future exit strategies also need to be considered.
These are reasons to plan carefully, not reasons to do nothing. The current trust-and-bucket-company model may become less attractive, but a replacement should be chosen because it suits the family’s assets and objectives, not because it appears to solve one tax headline.
The proposed trust changes are real and may require action for many families with discretionary trusts and corporate beneficiaries. However, the response should be measured. The minimum tax is not due to commence until 1 July 2028, and the rollover window is not expected to open until 1 July 2027. There is time to review structures properly, model the likely outcomes, and preserve the benefits that made the trust valuable in the first place.
For now, the best approach is to identify affected structures, map the assets, and model the available options. Cameron Harrison can do that work now, so families are ready to move when the rules are settled. In many cases, the goal will be adjustment, not abandonment.
The Government has proposed that discretionary trusts be subject to a 30% minimum tax on taxable income from 1 July 2028, assessed at the trustee level rather than solely through beneficiaries. However, the proposal has not yet been enacted, and important details, including the treatment of franking credits, losses and rollover relief, remain subject to consultation and draft legislation. Families should prepare for change, but avoid restructuring before the final rules are known.
The Government has subsequently confirmed that testamentary trusts, including future discretionary testamentary trusts, will remain outside the proposed minimum tax regime provided distributions are not made to corporate beneficiaries. This preserves their role in estate planning, asset protection and intergenerational wealth transfer, along with the existing income splitting opportunities available to individual beneficiaries.
For most families, an immediate unwind is unlikely to be the right response. Discretionary trusts often serve purposes that extend well beyond tax, including asset protection, succession planning and the orderly transfer of wealth between generations. The more useful exercise is to review which assets continue to belong within the trust structure, which might be better held elsewhere, and how income flows can be adapted once the legislation is settled.