2026-27 Federal Budget

What the Budget means if you run a business or hold investments through a trust

Read the status before you read the detail. This is exposure draft legislation — released by Treasury on 3 September 2026 — and not law. No bill has been introduced. What is proposed is a minimum 30% tax on the taxable income of discretionary trusts from 1 July 2028. The draft gives trusts three paths: restructure using a three-year rollover, make a new one-off election to opt out by fixing beneficiaries and their shares, or accept the tax. It also confirms that bucket company strategies would become materially more expensive. Our advice: there is now enough detail to model your options — but don’t restructure until the law is final.

Current as at 9 October 2026. Tax law is changing rapidly following the 2026–27 Budget. Measures marked Before Parliament, Consultation or Announced are not law and may change or not proceed.

Proposed start

1 July 2028

Exposure draft only, released 3 September 2026 (consultation closed 18 September). No bill. The draft confirms the 1 July 2028 start, but the detail can still change — and further tranches are still to come.

The proposed rate

30% minimum

On the taxable income of discretionary trusts. Individual beneficiaries would get a non-refundable 30% offset — corporate beneficiaries would not. Trusts can opt out by a one-off election in 2028–29.

Proposed rollover

3 years

Income-tax-free transfer out of the trust, 1 July 2027 to 30 June 2030, with no size limit. All required assets must move inside the window. CGT-free does not mean duty-free — see below.

First question

Does this actually apply to my trust?

Consultation — exposure draft 3 September 2026, no bill introduced

Law Passed and assented. Plan around it.

Before Parliament Introduced, not yet passed.

Consultation Treasury paper or exposure draft only.

Announced Budget announcement. No draft, no paper.

The new tax targets discretionary trusts specifically. Several other trust types, and certain types of income, are excluded. Here’s where each common situation lands.

Discretionary (family) trust running a business

The core target of the change. The 30% minimum tax applies to the trust’s taxable income from 1 July 2028, regardless of how distributions are made.

×Affected

Discretionary trust holding passive investments

Same treatment as a trading trust. The 30% minimum tax applies to all taxable income earned by the trust, including investment income.

×Affected

Discretionary trust deriving primary production income

Taxable primary production income is excluded from the minimum tax. That does not cover rent or agistment fees from merely holding farm land, and non-PP income earned by the trust is still affected.

∼Partial

Fixed unit trust

Fixed trusts are outside the minimum tax. The draft replaces the current fixed trust definition with a broader one — a trust is fixed if entitlements are fixed or there are no material discretionary elements — so many commercial unit trusts should qualify. Check your deed against the new test rather than assuming.

✓Unaffected

Testamentary trust (genuine — from a Will, codicil, court order or intestacy)

Income is excluded under the draft — whether the trust exists now or is created later. The integrity limit: income from property injected after 7:30pm on 12 May 2026 that is unrelated to the deceased estate is still caught, and the Commissioner can deny the exclusion for property moved into the trust to avoid the tax.

✓Mostly unaffected

Testamentary trust established on or after 1 July 2028

Excluded only where the beneficiaries are individuals or exempt entities. A testamentary trust established from 1 July 2028 that distributes to a company or another trust would be caught. Worth checking how your Will’s testamentary trust clauses are drafted.

∼Partial

Discretionary trust that elects out (new “excluded election trust”)

New in the draft. A trust existing at 1 July 2028 can elect, once, in 2028–29, to be outside the minimum tax — but must nominate its beneficiaries and their fixed shares of income and capital indefinitely. Departing from the nomination in any year revokes the election and taxes that year’s income at the top marginal rate. Cannot be combined with the rollover.

∼By election

SMSF, complying super fund

Complying superannuation funds are excluded entirely. SMSFs are not affected by this change at all.

✓Unaffected

Special disability trust, charitable trust, deceased estate

Special disability trusts and deceased estates are excluded by the draft. Charitable trusts are expected to stay outside because of their existing tax exemption, and distributions to charities, DGRs and other exempt entities are carved out of the minimum tax.

✓Unaffected

How the tax would work

A 30% floor — not a cap

Consultation

Everything in this section describes what the exposure draft proposes, not what the law says. Under it, the trustee would pay a top-up tax so trust income bears at least 30%, individual beneficiaries would still report distributions and receive a non-refundable 30% offset, and the effective rate on trust income could not drop below 30%. The draft is a first tranche: the interaction with the 30% minimum tax on capital gains, administration and payment timing are still to come.

How it works 01

Trustee pays first

From 1 July 2028, trustees of discretionary trusts will calculate the trust’s taxable income and pay tax at a minimum of 30%. If a higher rate would otherwise apply (e.g. for undistributed income to non-residents), that higher rate continues.

Franking credits received by the trust must be applied against the minimum tax, with any excess refunded to the trustee. They no longer flow through to beneficiaries — individuals get the 30% offset instead, which changes the result for low-rate beneficiaries.

How it works 02

Beneficiaries get a credit — but it’s capped

Individual beneficiaries (other than corporate beneficiaries) receive a non-refundable credit for the trustee’s tax. The credit can reduce their personal tax to zero, but it can’t generate a refund.

The practical effect: a beneficiary on a 0% or 14% marginal rate effectively pays 30% tax on the trust distribution — the same as the trustee paid — with no way to claim the difference back.

How it works 03

Corporate beneficiaries get no credit

This is the most significant change for clients using bucket companies. From 1 July 2028, a corporate beneficiary that receives a distribution from a discretionary trust receives no credit for the trustee’s 30% tax.

The exposure draft confirms this — and it is the point that matters most. The July consultation paper flagged that a distribution to a corporate beneficiary could be taxed twice — once in the trust at the 30% minimum, and again in the company. Consultation did not fix it: the draft still gives corporate beneficiaries no offset. That does not merely reduce the benefit of a bucket company; it makes the structure actively expensive.

The exception is the new election: a trust that elects out can nominate an “eligible company” (one with no material discretionary elements in its shares) as a fixed beneficiary. That trades away flexibility permanently, so it needs modelling, not a reflex decision.

How it works 04

Excluded income is excluded

Several specific types of income are not subject to the minimum tax even if the trust is a discretionary trust:

Taxable primary production income; certain income of vulnerable minors; income to which a charity, DGR or other exempt entity is entitled; amounts subject to non-resident withholding tax; and income of genuine discretionary testamentary trusts (subject to the integrity limits above).

The biggest single change

What this means for bucket companies

The trust-to-company distribution strategy — cap tax at 25% by streaming profits to a bucket company — is the single most affected planning technique. Here’s the before and after.

$100,000 of trust profit distributed to a bucket company

How the bucket company strategy used to work — and what changes

Before 1 July 2028 Old rules

Trust earns $100,000 and distributes it to a bucket company. The bucket company pays 25% tax on the distribution (small business rate), leaving $75,000 retained in the corporate beneficiary.

Profit stays at the 25% corporate rate indefinitely. When eventually paid out as a franked dividend, the franking credits flow to the ultimate shareholder, so the total tax cost is determined by the shareholder’s marginal rate when the funds finally leave the structure.

Net tax: 25% while held in the bucket company, with timing flexibility for when the personal tax is paid.

From 1 July 2028 New rules

Trust earns $100,000. The trustee pays 30% minimum tax ($30,000) before the distribution. The bucket company then receives $100,000 of trust distribution but gets no credit for the $30,000 the trustee paid.

The bucket company is then taxed on the $100,000 distribution at the company rate. The same income is effectively taxed twice — once at the trust (30%), once again at the company (25%).

Effective tax: well above 30%. Bucket companies as a tax minimisation tool no longer work.

Existing bucket companies with prior-year UPEs

The exposure draft does not deal with existing unpaid present entitlements (UPEs) owed to corporate beneficiaries. The separate announced measure to bring UPEs within Division 7A is still to be legislated, so groups carrying historical UPEs still face uncertainty.

For most clients with material existing UPEs, this remains a watch item — but it should be part of the modelling now, because it affects which of the three paths makes sense.

Worked example

A typical client comparison: trust vs company

A small-business owner earning $300,000 a year. Comparing the same income through a discretionary trust before and after the change — and against operating through a company instead.

Kurt — family business through a discretionary trust

$300,000 of business income, four family beneficiaries

Kurt pays himself $100,000 as a salary (working in the business) and the trust has $200,000 of remaining taxable income. He distributes $50,000 to each of four extended family members on no other income, keeping the cash in the business.

Before 1 July 2028 Old rules

Kurt’s salary tax ($100k)	$22,567
Beneficiary 1 ($50k, no other income)	$4,861
Beneficiary 2 ($50k)	$4,861
Beneficiary 3 ($50k)	$4,861
Beneficiary 4 ($50k)	$4,861
Total tax paid by family	$42,011

From 1 July 2028 New rules

Kurt’s salary tax ($100k)	$22,567
Trustee min tax on $200k @ 30%	$60,000
Beneficiary 1 ($50k) net tax	$0
Beneficiary 2 ($50k) net tax	$0
Beneficiary 3 ($50k) net tax	$0
Beneficiary 4 ($50k) net tax	$0
Total tax paid by family	$82,567

The family pays $40,556 more tax under the new rules while distributing exactly the same income to the same people. The beneficiaries on $50k each previously paid less than 10% tax; now their distributions are effectively taxed at the 30% floor. If Kurt instead restructured into a company paying himself $100,000 salary and retaining $200,000 at the 25% small business rate, the family would pay around $72,000 in total — about $10,500 less than continuing as a trust.

The proposed way out

Three-year rollover relief to restructure

Consultation

The exposure draft provides rollover relief for three years — from 1 July 2027 to 30 June 2030 — for transfers out of a discretionary trust to a single transferee (a company, a fixed trust, an individual or a partnership). There is no size limit and no genuine-restructure test, and passive investment assets qualify. The conditions are strict: all required assets must be transferred inside the window or relief is lost for the whole restructure; the choice is irrevocable and one per trust; the new entity must not have discretionary elements for four years afterwards; and it is a deferral (the transferee inherits the trust’s cost base), not an exemption. A trust that uses the rollover cannot also make the opt-out election.

From 1 July 2027

Rollover window opens. A trust can transfer its assets to a single new entity (typically a company or fixed trust) with no direct income tax consequences. A restructure completed in 2027–28 avoids the minimum tax entirely.

1 July 2028

30% minimum tax starts. Trusts that haven’t restructured pay the minimum tax from this year — unless they make the one-off opt-out election, which can only be made in 2028–29.

By 30 June 2030

Rollover window closes. Every required asset must have been transferred by this date, or relief is denied for the whole restructure.

From 1 January 2027

ASBFEO advisory service. The Australian Small Business and Family Enterprise Ombudsman will be funded to help small businesses understand their restructure options. ASIC will support incorporation processes.

CGT-free is not cost-free — Victorian transfer duty is not relieved

The proposed rollover relieves income tax, including CGT. The draft confirms it does nothing about GST, FBT or transfer duty, which is a State tax. Moving assets — particularly Victorian real property — out of a discretionary trust and into a company or fixed trust can trigger duty at full ad valorem rates on the value transferred, and on a commercial property or a portfolio of them that is a six-figure cost arriving in the same year.

This is the most commonly missed number in any restructure discussion, and it is often large enough on its own to change the answer. Any restructure model that does not have a duty line in it is not a model. We would look at the duty position before anything else.

Restructuring isn’t automatic, and it isn’t always the right call

Moving out of a trust is a meaningful structural change. The benefits of the trust form — asset protection, flexibility for changing family circumstances, ability to stream income to genuinely different beneficiaries year-to-year — don’t go away just because the tax efficiency reduces.

A company offers the 25% rate but loses the streaming flexibility and changes the asset protection profile. A fixed trust preserves trust structure but locks in beneficial entitlements. The right choice depends on your business, your family, your time horizon and your succession plans — not just the headline tax rate.

What you should do

Practical steps over the next 18 months

There is now draft law, but it is not law, and further tranches are still to come. A restructure is expensive, slow and hard to reverse. The draft does give enough detail to compare the three paths — restructure, elect out, or accept the tax — and that modelling makes sense now. Acting on it does not, yet.

Don’t restructure yet

This is exposure draft legislation released 3 September 2026, with no bill introduced. The rollover window does not open until 1 July 2027 anyway, so there is nothing to gain by moving early — and the interaction with the minimum tax on capital gains, UPEs and administration is still unresolved. Restructuring now means paying real transfer duty today on rules that may still change.

If you use a bucket company — book a planning meeting

You don’t need to act on it yet, but you do need to understand the maths for your specific situation. The size of your existing UPEs, your distribution patterns and your family’s tax positions all change the answer.

If you distribute to low-MTR beneficiaries — rerun the numbers

Trusts that stream income to a non-earning spouse, adult children at uni, or retired parents have relied on those beneficiaries’ lower marginal rates. Those distributions will effectively be taxed at 30% from 1 July 2028 — the beneficiary’s 30% offset is non-refundable, and franking credits no longer flow through.

If your trust holds primary production assets — confirm the carve-out applies

Primary production income is excluded, but non-PP income earned by the same trust is still affected. Mixed-use trusts — farming plus investment income, for example — will need separate analysis.

Compare the three paths for your trust

The draft sets out three options: restructure under the rollover (completed in 2027–28 to avoid the tax entirely), elect out in 2028–29 by fixing beneficiaries and shares indefinitely, or accept the 30% minimum. The rollover and the election are mutually exclusive. Each has a different cost profile — we can model them side by side for your trust.

Review your Will’s testamentary trust clauses

Under the draft, genuine testamentary trusts stay outside the minimum tax — but one established from 1 July 2028 only keeps that exclusion if its beneficiaries are individuals or exempt entities. If your Will allows distributions to companies or other trusts, it is worth reviewing. Testamentary trusts remain a sound planning tool; the draft does not create a deadline to rush a Will.

Get the transfer duty number before anything else

If a restructure ever becomes the right answer, Victorian transfer duty will usually be the largest single cost of doing it — and the proposed CGT rollover does not relieve it. Knowing that number now tells you whether restructuring is even on the table for you. We can scope it without committing you to anything.

Where this sits, plainly

There is no trust minimum tax yet. There is exposure draft legislation for one — released by Treasury on 3 September 2026, confirming a 1 July 2028 start. No bill has been introduced as at 9 October 2026. The detail can still change, further tranches are still to come, and the measure is not law until it passes Parliament.

This page cannot give you a final answer about what your trust will pay in 2028-29. What we can do is model your exposure under the draft as it stands, compare the rollover, the opt-out election and staying put, price the transfer duty on any restructure, and make sure you are not caught unprepared. That is a conversation worth having now. A restructure is not.

Mastin Harris Family Wealth Protection

Testamentary trusts still work — if the Will is drafted for the new rules

Under the draft, genuine testamentary trusts stay outside the new minimum tax. But from 1 July 2028, a new testamentary trust only keeps that exclusion if its beneficiaries are individuals or exempt entities. For clients without a current Will, or whose Will allows distributions to companies or other trusts, it is worth a review. We can help.

Protecting inheritances →

Other Budget changes that might apply to you

Trust clients usually fit more than one of these

Most trust clients also run a business, hold investments or have an SMSF. Other Budget changes interact with the trust changes in ways worth understanding.

If this applies

I run a small business

Permanent $20,000 write-off and loss carry-back are law (Royal Assent 26 August 2026). PAYG changes announced only.

Read about small business changes If this applies

I own (or am buying) an investment property

Now law. Losses quarantined from 1 July 2027 — but property held at 12 May 2026 is grandfathered.

Read about property changes If this applies

I hold shares or other investments

Now law from 1 July 2027. The 50% discount is replaced with CPI indexation and a 30% minimum tax.

Read about CGT changes If this applies

I have a Self-Managed Super Fund

Division 296 from 1 July 2026 affects balances over $3 million. SMSFs are exempt from the trust minimum tax.

Read about SMSF changes If this applies

I’m a PAYG employee

All law: the rate cut on the $18,201–$45,000 bracket, the $1,000 instant deduction and the $250 offset.

Read about employee changes If this applies

I’m retired or close to it

The private health rebate cut for over-65s is a bill before Parliament, not law. CGT changes and Division 296 are law.

Read about retirement changes

Get the structure right for your circumstances — not just the headline.

The trust minimum tax is a meaningful change, but the right response depends on your business, your family, your succession plans and your time horizon. We help clients understand the options before they need to choose — not after.

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