Part three of Nexia’s series on capital gains tax (CGT) changes and the proposed 30% minimum tax on discretionary trusts
Of all the proposed tax changes currently being discussed, few have generated as much interest from family groups, business owners and investors as the proposed 30% minimum tax on trustees of discretionary trusts (trustees).
We are finding that many clients have heard snippets about a new minimum tax applying to trusts, but are unsure how the proposed regime is intended to operate in practice.
The challenge is that the legislative detail is still evolving. While the broad policy direction is becoming clearer, many practical questions remain unanswered and different interpretations continue to emerge across the profession. At the date of this publication, the Australian Government has released exposure draft legislation, but legislation for the proposed 30% minimum tax has not been introduced into Parliament.
Despite that uncertainty, there are some important concepts trustees and beneficiaries should understand now.
What is the proposed 30% minimum tax on trustees?
Under the proposed framework, trust income would be taxed differently to the way many discretionary trusts operate today.
In broad terms, the proposal introduces a 30% trustee-level tax on trust income before distributions are made to beneficiaries.
The objective is to establish a minimum level of taxation on trust income and reduce opportunities for income streaming through discretionary trust structures.
While the detailed legislation continues to evolve, the practical effect could represent one of the most significant changes to trust taxation in decades.1
How would the proposed system work?
Under the current proposal, the process would broadly operate as follows:
Step one: The trustee pays the tax
The trustee calculates the trust’s taxable income (or net income) and pays income tax at a flat 30% rate before distributions are made.
This differs from the traditional approach where beneficiaries are typically assessed on trust income distributed to them.
Where a profitable trust distributes income to a loss trust within the same family group, the arrangement may not deliver the expected benefit of using those losses. Under the proposal, the profitable trust would still be subject to the 30% minimum tax.
Step two: Beneficiaries receive a tax credit
Where distributions are made to individual beneficiaries, they would generally receive a tax credit for the 30% tax that has already been paid by the trustee.
An individual beneficiary would then include the relevant trust income in their own tax position.
Step three: Beneficiaries may pay more tax
For beneficiaries who are individuals and whose marginal income tax rate exceeds 30%, additional personal tax may still become payable.
For example, individuals on the highest marginal tax rates may need to fund a further tax liability above the amount already paid by the trustee.
Step four: Lower-income beneficiaries may not receive refunds
One aspect of the proposal is that individual beneficiaries with tax rates below 30% may not be able to obtain a cash refund for excess tax credits, being income tax paid by the trustee at 30%.
Instead, the tax credit is proposed to be non-refundable.
This means lower-income family members could effectively lose the benefit of their lower marginal tax rates in circumstances where the trustee has already paid tax at 30%.
Other important aspects of the proposal relate to distributions made to corporate beneficiaries, commonly referred to as “bucket companies” (refer below).
Why are business owners concerned?
For many years, discretionary trusts have provided flexibility when distributing income among family members.
That flexibility has allowed family groups to manage after-tax outcomes based on individual circumstances.
The proposed 30% minimum tax on trustees has the potential to reduce some of that flexibility.
As a result, many business owners and investors are questioning:
- Will my trust continue to operate efficiently?
- Should my structure be reviewed?
- Are there alternative approaches available?
- Will existing trust planning strategies still achieve their original purpose?
These are increasingly becoming strategic planning questions rather than simple compliance questions.
The bucket company issue
One of the most significant impacts may be on bucket company strategies, where a trust distributes income to a corporate beneficiary or “bucket company”.
Bucket companies have traditionally been used by many family groups to receive trust distributions and retain profits in a corporate environment.
Under the proposed framework, corporate beneficiaries would generally not receive a tax credit for the 30% minimum tax and trustee-level tax already paid.
If implemented in its current form, this could make traditional bucket company arrangements substantially less effective than they have been historically.
Distributions to corporate beneficiaries could also create a significant additional tax cost.
Under the proposal, appointing trust income to a corporate beneficiary could result in an effective tax rate of up to 69.71%. This would make the use of a corporate beneficiary significantly less attractive and, in some cases, more costly than distributing the income to an individual taxed at the top marginal rate of 47%, including the Medicare levy.
For many family groups, this is likely to become a major area of review.
The important point is that this does not automatically mean bucket companies become obsolete. However, existing structures may need to be reconsidered to determine whether they remain fit for purpose.
The current draft rules also include an “Excluded Election Trust” election, which may allow certain trusts to make tax-effective distributions to corporate beneficiaries or bucket companies from 1 July 2028.
Not all trusts are affected equally
An important aspect of the proposal is that a number of groups are intended to be excluded from the new regime.
The 30% minimum tax will apply to discretionary trusts, meaning a fixed trust is generally excluded. The exposure draft expands the definition of a fixed trust so that more commercial trust structures, including unit trusts, may qualify where there are no material discretionary elements affecting beneficiaries’ rights or entitlements.
Currently, the proposed exclusions also include:
- Primary production (farming) income
- Income received by vulnerable minors, including certain disability-support and orphan arrangements
- Deceased estates and discretionary testamentary trusts established for genuine testamentary purposes
- Income received from a trust by a beneficiary that is a registered charity, Deductible Gift Recipient or another eligible charitable trust.
These exclusions recognise that certain trust arrangements exist for policy or social reasons that differ significantly from family investment and business structures.
However, the detailed application of some of these exemptions remains an area requiring further clarification.
An important question: fixed trust or discretionary trust?
One of the most important issues emerging from the discussion is the distinction between fixed trusts and discretionary trusts.
Many advisors believe that future outcomes may depend heavily on how particular structures are classified.
In some situations, trusts that have historically been viewed one way may warrant review to determine whether their status remains appropriate under the proposed rules.
This is particularly important because:
- Classification may influence access to concessions
- Classification may affect future distribution strategies
- Classification may affect restructuring opportunities
- Classification could influence how trustees are taxed under future legislation
At this stage, many aspects remain unsettled and professional interpretations continue to develop.
In September 2026, the Australian Government released exposure draft legislation that included:
- Temporary three-year rollover relief for restructures undertaken between 1 July 2027 and 30 June 2030, allowing trustees to transfer their assets to a company or fixed trust without triggering immediate tax consequences, including CGT.
- A new “Excluded Election Trust” election regime, through which some existing trustees may be able to avoid the minimum tax without formally restructuring (refer above).2
Trustees should seek tax advice tailored to their circumstances when considering these proposed options. Separate legal advice may also be required, including in relation to any state or territory duty implications.
The opportunity may be in the transition period
Because the above rules in the exposure draft legislation have not yet been finalised, many advisers are focusing less on predicting the final rules and more on identifying potential planning opportunities.
For some family groups, this may include:
- Reviewing trust deeds
- Assessing trust classifications
- Reconsidering bucket company arrangements
- Modelling future income distribution strategies
- Evaluating whether existing structures align with long-term family objectives
Importantly, any opportunities will depend on your individual circumstances.
The businesses and investors that are likely to be best placed are those that begin reviewing their structures early rather than waiting for legislation to be finalised.
The focus should be preparation, not panic
The proposed 30% minimum tax on trustees represents a potentially significant shift in the taxation of discretionary trusts.
However, it is important to remember that the above rules in the draft legislation are still evolving and many practical questions remain unresolved, including legal and state and territory duty considerations.
For trustees and beneficiaries, the priority should not be making rushed decisions based on incomplete information.
Instead, now is the ideal time to understand how your existing structures operate, identify potential areas of exposure and prepare for possible future changes.
Those who understand their structures today will generally have more options available tomorrow.
How Nexia can help
If you currently operate through a discretionary trust, family trust or trustee and bucket company structure, now is a good time to understand how the proposed 30% minimum tax on trustees could affect your future planning options for wealth generation.
A proactive review may help you identify opportunities, improve flexibility, revisit existing strategies and prepare for the proposed reforms.
Speak with your local Nexia Advisor for advice tailored to your circumstances.
1For further information, read our related article, “A new era for discretionary trusts? Unpacking the proposed 30% minimum tax”.
2For further information, read part two of our tax reform series, “What’s the best structure for new investments?”
Important: This article is based on legislation and draft rules as proposed at the time of writing. Future government policy, legislation and the outcome of the next Federal Election may result in changes. The information provided is general in nature and should not be relied upon as a substitute for professional advice. Please seek advice tailored to your individual circumstances.
