Does Your Family Trust Still Make Sense? The Proposed Discretionary Trust Minimum Tax Explained

For decades, a family trust has let property investors direct rental income and capital gains to whichever family member pays the least tax. Under a proposed law, that flexibility would come with a 30% floor from 1 July 2028. The Treasury Laws Amendment (Tax Reform No. 3) Bill 2026 and a companion rates Bill were introduced to Parliament on 14 October 2026 (MacCallum & Touma, 2026). They have not passed and could change, but anyone holding property in a family trust should know what is proposed.

What is the proposed discretionary trust minimum tax?

It is a proposed 30% minimum tax on the taxable income of discretionary trusts, which the trustee would calculate, report and pay (Commonwealth of Australia, 2026). As drafted, it would work as a top-up: 30% where no tax would otherwise be paid on the income, the shortfall where tax is paid below 30%, and nothing where tax is already 30% or more (PwC Australia, 2026).

Individual beneficiaries would receive a non-refundable credit for the tax the trustee paid. Corporate beneficiaries would receive no credit (Commonwealth of Australia, 2026), which would make distributing to a “bucket company” more expensive.

Which trusts would be excluded?

Under the Bills as introduced, fixed trusts, deceased estates, complying super funds, special disability trusts and employee share trusts would sit outside the regime. Primary production income, certain income of vulnerable minors and income from genuine testamentary trusts would also be excluded (MacCallum & Touma, 2026). Rental income would not be excluded (PwC Australia, 2026).

What could it mean for a property trust?

Distributing to a low-income family member would cost more. Take a trust with $60,000 of net rental income distributed to a beneficiary with no other income. Using 2027-28 rates, and ignoring the Medicare levy and offsets, that beneficiary would pay about $8,250 in tax. Under the proposed minimum tax, the trustee would pay $18,000, and because the credit is non-refundable, the difference of about $9,750 would not be returned. These are our own calculations and assume 2027-28 rates still apply in 2028-29.

Loss-making trusts would pay nothing in that year. As drafted, the minimum tax applies only where the trust has net income (PwC Australia, 2026). A negatively geared trust with no net income would not be caught that year, though its losses remain trapped in the trust.

Capital gains are unresolved. Individuals already face a legislated 30% minimum tax on capital gains accruing from 1 July 2027. PwC Australia (2026) warned the draft trust rules risked taxing the same gain at both the trust and beneficiary level.

What options are proposed?

1. Accept the tax. Trusts that mainly distribute to beneficiaries already paying 30% or more may see little extra cost.

2. Elect to become an excluded election trust (EET). As proposed, trusts existing on 1 July 2028 could elect once, in the 2028-29 income year, to nominate beneficiaries with fixed shares of income and capital totalling 100% (Meadmore & Liu, 2026). Departing from those shares would revoke the election, and the trustee would then be taxed at the top marginal rate on that year’s net income (PwC Australia, 2026). The Treasurer has said the election would not attract stamp duty, but no state or territory has confirmed this (Meadmore & Liu, 2026).

3. Restructure using rollover relief. The Bills propose a window from 1 July 2027 to 30 June 2030 in which trusts could transfer assets into a new structure without immediate income tax (MacCallum & Touma, 2026). The rollover would defer income tax but not cover state stamp duty (PwC Australia, 2026), which can be a large cost when the assets are real property. Trusts could not use both the rollover and the EET election (MacCallum & Touma, 2026).

Will the Bill pass?

That is not yet clear. The Coalition opposes the Bill. The Greens want changes and have called for a Senate inquiry, and the Government needs their support to pass it (Wan, 2026). This article reflects the Bills as introduced.

What should trust investors do now?

• Model your 2028-29 position. Work out who your trust distributes to and what each beneficiary would pay if the law passes as proposed.
• Do not restructure before the law is settled. Stamp duty, lender consent and asset protection all need review before property moves, and the rules may still change.
• Watch the Senate. Key details, including capital gains, are still open.

Frequently asked questions

Is the discretionary trust minimum tax law yet? No. The Bills were introduced to Parliament on 14 October 2026 and still need to pass both houses. If passed, the tax would apply from 1 July 2028.

This article is general information only and is not tax, legal or financial advice. It reflects proposed legislation, which may change. Speak to a registered tax agent about your situation.