What is being proposed?
Under the proposal, trustees of discretionary trusts, commonly called family trusts, would generally pay a minimum tax of 30% on the trust’s taxable income.
If income is distributed to an individual or certain other non-corporate beneficiaries, they would generally receive a non-refundable tax offset for the tax already paid by the trustee.
The Government says the change is intended to better align the tax paid on trust income with salary and wage earners and reduce opportunities to split income between family members.
Not every trust would be affected. Proposed exclusions include:
- Fixed and widely held trusts
- Complying superannuation funds
- Charitable trusts
- Deceased estates
- Special disability trusts
- Genuine testamentary trusts
- Primary production income
- Certain income relating to vulnerable minors
The Government has stated that more than 90% of small businesses are not expected to be affected.
What could this mean for family trusts?
One area to watch is family trusts that distribute income to companies.
Many family groups have historically used company beneficiaries to help manage cash flow, retain profits in the business and fund future growth.
Under the proposal, a company receiving a trust distribution would not receive an offset for the tax already paid by the trustee. In many cases, this would result in the income being taxed twice.
Some family groups may also find it harder to fully use existing tax losses.
The impact will depend on how your trust and wider business or investment structure operates.
Do you need to change your family trust?
Not at this stage.
The proposal is still under consultation. Treasury released a consultation paper in July 2026 and final legislation has not yet been introduced.
Family trusts can also provide benefits beyond tax, including asset protection, succession planning and business flexibility.
For most groups using discretionary trusts, making major changes based solely on the announcement would be premature.
What about restructuring?
The Government has proposed a temporary three-year rollover period from 1 July 2027 to help eligible groups restructure into alternatives such as companies or fixed trusts without triggering immediate income tax or capital gains tax consequences.
Restructuring can involve other costs and considerations, including stamp duty, loan approvals, financing arrangements, contract changes, licensing requirements and professional advice.
Any decision to restructure should consider these factors, not just the proposed tax changes.
What should you do now?
There is still time before the proposed 1 July 2028 start date, and the rules may change before then.
If your family trust distributes income to a company, or you have a more complex business or investment structure, it may be worth reviewing how the proposal could affect you.
If you’re unsure, talk to the team at Lead Advisory Group. We can review your current structure, explain how the proposed changes may apply and help you decide whether any action is needed as the legislation develops.
Get in touch with Lead Advisory Group to discuss your situation.
