The 2026-27 Federal Budget included a proposal that has quietly alarmed many small business owners across Australia: a 30% minimum tax on distributions from discretionary family trusts. On the surface, it sounds like a measure aimed at wealthy investors using trusts to minimise tax. In practice, the people most affected are growth-stage business owners who have structured their affairs responsibly, and who need the family trust the most.
This guide is part of our complete guide to trusts in Australia.
This post breaks down what the proposal involves, who it actually targets (versus who it claims to target), and why the case for family trusts, particularly the asset protection case, remains as strong as ever, regardless of how the tax landscape shifts.
What Is the Proposed 30% Minimum Trust Tax?
Under the current rules, when a family discretionary trust distributes income to a beneficiary, that beneficiary pays tax at their personal marginal rate. If your adult child earns $30,000 a year from other sources and receives a $50,000 distribution from the family trust, the trust income is taxed at their marginal rate, which may be 19% or lower on much of that amount.
The proposed change would impose a 30% minimum tax rate on distributions to certain beneficiaries from discretionary trusts. The stated policy intention is to prevent high-income individuals from routing income through trusts to low-bracket beneficiaries purely to reduce their own tax bill. In theory, it sounds fair. In practice, the unintended consequences fall almost entirely on the wrong group of people.
It is important to note: as of the time of writing, this proposal has not been legislated. It is a Budget announcement that is subject to consultation and parliamentary process. But the direction of travel is clear enough that business owners with family trusts should understand the implications now, before the legislation is finalised.
Who Gets Hit Hardest, and Why It Isn’t Who You Think
The policy framing suggests this measure is aimed at wealthy individuals parking income in trusts to split it to non-working family members and dramatically reduce their tax bill. That scenario exists. But it is not the dominant use case for family trusts among the small and medium business owners who make up the bulk of trust users in Australia.
The Growth-Stage Owner Who Doesn’t Pay Themselves a Market Wage
Consider a common scenario: a business owner who is building their company. They have a family trust as the operating or investment structure. They don’t pay themselves a formal salary, partly because the business is still growing, partly because they are reinvesting every dollar they can back into operations, equipment, staff, or working capital.
Here is the part that often gets overlooked in this debate. A business owner who does not pay themselves a salary is not an employee of their own business. That means they have no superannuation guarantee (SG) obligation on themselves. The 12% that would otherwise flow out of the business as compulsory super stays inside the business as working capital. It is reinvested, not extracted.
The trust then distributes income to working family members: a spouse who handles administration, an adult child who has stepped in to run operations, a parent who contributed to the business in its early years. These family members are on lower marginal rates because they have limited income from other sources. The distribution is taxed at their rate, not the business owner’s rate.
That is not tax avoidance. That is a working family running a business together, being compensated for contributions that would cost far more to outsource, while keeping capital inside the enterprise. The 30% minimum tax would treat this family exactly the same as a passive investor who uses a trust solely to reduce their personal tax bill by routing income to a spouse who has never set foot in the business. They are not the same situation.
The Income-Splitting Benefit Disappears at the Top
Here is the core irony of the proposed minimum tax. The income-splitting benefit of a family trust is most valuable when the beneficiary’s marginal rate is significantly below 30%. That means the benefit is concentrated among beneficiaries in the 0% to 19% bracket: the low-income earners, the part-time contributors, the family members who genuinely earn their distributions but earn them at a modest level.
A high-income earner whose beneficiaries are already paying 37% or 45% on other income doesn’t benefit meaningfully from distributing trust income to them. Their marginal rates are already well above the proposed 30% floor. The minimum tax changes very little for the genuinely wealthy.
The floor hits hardest at the owners who need every structural efficiency they can access: the growth-stage SME owner, the family business in its first decade, the sole operator building something for the next generation. These are not the people the policy is aimed at. They are the people who will wear the cost.
The Asset Protection Case: This Was Never Really About Tax
Even setting aside the income tax argument entirely, there is a separate and compelling reason why family trusts are used by Australian business owners, and it has nothing to do with minimising distributions tax. It is asset protection.
In a properly structured discretionary trust, no beneficiary has a fixed, legal entitlement to the underlying trust assets. The trustee holds legal title to the assets. The beneficiaries have a right to be considered for distributions, not a right to any specific asset or share of the corpus. In practice, this means that in the conventional legal sense, no one “owns” the assets inside the trust.
The practical consequence of that structure is significant. If a beneficiary faces a creditor action (a lawsuit, a personal debt, a business failure, a bankruptcy proceeding), the creditor cannot automatically reach the assets held inside the trust. The creditor cannot compel distributions. They cannot place a charge over trust assets as though the beneficiary owned them, because the beneficiary does not own them in the way a shareholder owns shares.
Compare that to a company structure. Shareholders own shares. Those shares are assets in the shareholder’s name. A creditor can freeze shares, litigate over them, and in a bankruptcy scenario, have them liquidated. The share value flows back to creditors. The asset protection logic of a company is categorically weaker than that of a discretionary trust: not by a small margin, but fundamentally, in terms of how ownership and creditor access work.
This is why many business owners use family trusts to hold investment assets (property, shares, and other capital) separately from the operating business. If the business is sued, the assets in the trust are harder for creditors to reach. If a trust beneficiary runs into personal financial difficulty, the trust assets are not automatically exposed. This protection does not disappear because of a 30% minimum tax on distributions. The structural protection is separate from the tax treatment of income flows.
Families who use trusts for asset protection, which has always been a primary motivation for establishing the structure, will continue to do so. The question for most clients is not “should I have a trust?” but “how do I structure distributions under the new rules most effectively?” That is a planning question, not a reason to abandon the structure.
Does This Mean Family Trusts Are No Longer Worth It?
Not at all, but the calculus changes depending on your circumstances, and this is exactly the kind of change that warrants a conversation with your accountant before it is enacted, not after.
For families where the primary beneficiaries are already paying tax at or above 30% on their personal income, the proposed change has limited practical impact. The trust still provides flexibility, asset protection, and estate planning advantages. The income tax efficiency is already constrained by beneficiary tax positions, so the 30% floor changes little.
For families where the primary beneficiaries are in the 0–19% bracket, where income-splitting through the trust has been most tax-effective, the impact is more significant. A beneficiary who previously paid 0–19% on a trust distribution would now face a 30% minimum rate. That is a material increase. It needs to be modelled and planned for.
What it does not change is the strategic value of the structure itself. The asset protection, the discretionary distribution flexibility, the estate planning outcomes, the ability to retain income inside the trust at the 30% corporate trustee rate: these remain intact. The family trust is not being abolished. The income-splitting tax efficiency is being narrowed for certain distributions, and for certain beneficiaries, and only if the proposal is enacted as currently drafted.
Good tax planning means understanding the change before it takes effect, modelling the impact on your specific situation, and adjusting distribution strategies where necessary. That is what proactive advisory looks like, and it is exactly the kind of conversation you should be having with your accountant now, while there is still time to respond.
What Should Business Owners Do Now?
The proposal is not yet law, but the direction is clear. Here is what makes sense to do before this change is enacted.
Review your current distribution strategy. Understand who receives distributions from your trust, what their current marginal tax rates are, and how a 30% minimum would change the effective tax cost of those distributions. In some cases, the impact is minimal. In others, it is significant. You need to know which situation you are in.
Consider beneficiary income positions. If your trust distributes to a beneficiary who currently earns very little, the 30% floor may represent a large increase. Consider whether there are legitimate ways to adjust beneficiary income levels, such as salary arrangements for genuine work contributions, before the rules change.
Don’t dismantle the structure based on the proposal alone. The asset protection and estate planning advantages of the family trust are not affected by this change. Unwinding a trust has significant costs and consequences. Wait for the legislation, take advice, and adjust the strategy where appropriate, not the structure.
Get proper advice specific to your situation. The right response depends on your beneficiary profile, your business structure, your asset base, and your long-term goals. General commentary on the proposal, including this post, cannot replace advice tailored to your circumstances.
Frequently Asked Questions
Is the 30% minimum trust tax already law in Australia?
No. As of the date of this article, the proposed 30% minimum tax on discretionary trust distributions is a 2026-27 Budget announcement. It has not been enacted. It is subject to consultation and parliamentary process before it can become law. You should monitor developments closely and seek advice once the legislation is in draft form.
Will the 30% minimum tax apply to all trust distributions?
Based on the Budget announcement, the minimum tax is intended to apply to distributions from discretionary trusts to certain beneficiaries. The exact scope, including which beneficiaries are covered and whether any exemptions apply, will be determined by the draft legislation. Details are expected as part of the consultation process.
Does a family trust still provide asset protection if the 30% tax is introduced?
Yes. The asset protection features of a discretionary trust (the absence of fixed beneficiary ownership, the trustee’s legal title, and the limitation on creditor access to trust assets) are structural and exist independently of how trust income is taxed. A change to the income tax treatment of distributions does not affect the asset protection rationale for using the structure.
How does a family trust compare to a company for asset protection?
A discretionary trust generally provides stronger asset protection than a company because beneficiaries do not hold fixed ownership interests in trust assets. In a company, shareholders own shares that can be subject to creditor claims, freezing orders, and liquidation. In a properly structured trust, no beneficiary has a fixed legal entitlement to the underlying assets, making it more difficult for a creditor to access those assets through a beneficiary’s personal legal difficulties.
Should I wind up my family trust because of this proposal?
In most cases, no. Unwinding a trust is a significant and often costly process with its own tax and legal consequences. The appropriate response to a proposed change in how trust distributions are taxed is to adjust your distribution strategy, not to dismantle the structure. Seek specific advice before making any decisions about restructuring.
Who should I speak to about how this change affects my situation?
A registered tax agent or Chartered Tax Advisor with experience in trust structures is best placed to assess how the proposed change affects your specific situation. At Pinnacle Accounting & Advisory, we work with business owners to review their trust structures, model the tax impact of proposed changes, and put in place distribution strategies that are appropriate for the current environment. Book a consultation to discuss your situation.
Frequently Asked Questions
What is the proposed 30% minimum tax on family trusts?
It is a measure proposed in the 2026-27 Federal Budget to apply a minimum 30% tax on certain distributions from discretionary family trusts. The aim is to limit income splitting to lower-taxed beneficiaries, though the detail and start date depend on the legislation actually being passed.
Who would the 30% minimum trust tax affect?
If enacted as proposed, it would most affect family businesses that distribute trust income to beneficiaries on lower marginal rates, such as a spouse or adult children. Growth-stage owners using trusts responsibly could end up paying more tax on the same profits.
Is the 30% minimum trust tax law yet?
No. As a Budget proposal it is not yet law, and the detail can change or be dropped before any legislation. You should not restructure in a panic, but you should understand your exposure and get advice so you are ready to act once the final rules are known.
What should family trust owners do now?
Review how your trust distributes income, model the impact if the measure proceeds, and consider whether a bucket company or other structures fit your plan. The right response is careful planning with advice, not a rushed change based on an unlegislated proposal.
General Advice Disclaimer: The information in this article is general in nature and does not constitute personal financial, tax, or legal advice. The proposed 30% minimum tax on discretionary trust distributions is a 2026-27 Budget proposal that has not been enacted at the time of writing. Tax laws are subject to change. You should seek advice specific to your circumstances from a qualified tax adviser before making any decisions about your trust structure or distribution strategy.
Ready to do Business with Us?
Join countless small businesses and work with
Australia’s leading Small Businesses Accountants so you can
focus on growing your business – while we take care of the numbers.