Welcome to our Federal Budget Spotlight Series: Discretionary Trust Changes – What You Need to Know
A fundamental shift in trust taxation
The 2026–27 Federal Budget includes a proposed reform to the taxation of discretionary trusts, representing a significant shift in how these structures may be taxed in Australia.
From 1 July 2028, the Government proposes that discretionary trusts will be subject to a minimum 30% tax rate on taxable income (subject to legislation)
What’s changing?
Under the proposed rules:
- Trustees would pay at least 30% tax on trust taxable income
- Beneficiaries may receive non-refundable tax credits for tax paid at the trust level
- Trustees would be responsible for calculating, reporting and paying the tax
This would represent a move away from the traditional “flow-through” treatment of discretionary trusts toward a structure with entity-level tax characteristics.
Who is affected?
The proposal is expected to apply broadly to:
- Family (discretionary) trusts
- Investment and business structures using discretionary trusts
Certain entities are not expected to be impacted, including:
- Unit trusts and widely-held trusts
- Superannuation funds
- Charitable trusts and deceased estates
Key planning considerations
If enacted, the reform may require forward planning:
- Structure suitability
Trusts may continue to provide flexibility and asset protection, but their tax effectiveness may change depending on circumstances.
- Restructuring opportunities
Proposed rollover relief for up to 3 years from 1 July 2027 may allow some taxpayers to transition into alternative structures (e.g. companies or fixed trusts.
- Impact on wealth planning
The changes may influence how trusts are used in succession and estate planning strategies.
Our perspective
This proposal signals a shift toward a more standardised tax treatment of trust income.
While discretionary trusts are likely to remain useful for non-tax reasons, it may be prudent to review existing structures well ahead of the proposed start date.
Disclaimer
This article provides general information only and is based on the proposed measures announced in the 2026–27 Federal Budget. These measures are subject to legislation and may change. This content does not constitute tax, financial or legal advice. You should not act on this information without obtaining professional advice tailored to your circumstances.
