The Federal Government has completed consultation on draft legislation proposing significant changes to the taxation of discretionary trusts. The consultation period closed on 18 September 2026, and the Government is considering feedback from industry groups, businesses and professional advisers before determining the final form of the legislation.
If enacted, the measures would represent a substantial change for many family groups, business owners and investors who use discretionary trusts for income distribution, asset protection and succession planning. However, the proposals remain in draft form and important details may change.
What has been proposed?
The Government has proposed a 30% minimum tax on certain discretionary trust income from 1 July 2028. Under the draft legislation:
- The trustee would be responsible for paying the minimum tax.
- Non-corporate beneficiaries would generally receive a non-refundable tax offset for the minimum tax paid by the trustee in respect of their share of trust income.
- Corporate beneficiaries would be treated differently and would not receive the beneficiary tax offset under the current draft.
- Certain trusts and categories of income would be excluded from the minimum tax.
- An election may allow eligible existing trusts to make fixed distributions to nominated beneficiaries and remain outside the minimum tax regime.
- Rollover relief may be available for eligible trusts that choose to restructure.
The draft legislation also proposes new rules for determining whether a trust is a fixed trust.
Who may be affected?
The proposals are most likely to be relevant to:
- Family groups using discretionary trusts to distribute business or investment income.
- Property investors holding assets through discretionary trusts.
- Businesses that distribute income to multiple family members.
- Trust structures involving corporate beneficiaries.
- Families reviewing succession or estate planning arrangements involving discretionary trusts.
The actual impact will depend on the trust deed, the nature of the trust income, the beneficiaries and the final form of the legislation.
What should you do now?
Our advice is to prepare, but not act prematurely.
- Do not restructure solely because of the current proposals.
- Avoid transferring property, investments or business assets solely in response to the draft legislation.
- Consider an initial review of the trust structure so potential issues and information requirements can be identified early.
- Seek advice where a trust regularly distributes income to multiple family members or uses a corporate beneficiary.
Look beyond tax
Any future decision to restructure should consider more than tax outcomes alone. Asset protection, succession planning, estate planning, financing arrangements, transaction costs, state taxes and duties, and broader commercial considerations may be equally important.
Our view
While these proposals have the potential to significantly change the taxation of discretionary trusts, the legislation remains in draft form and important aspects may still change.
For most of our clients, the prudent approach is to understand the potential impact on their existing structure without rushing into costly restructuring decisions before the final law is known.
Holman Hodge is monitoring developments. Please contact your Holman Hodge adviser for further information.