The 2026-27 Budget announces the introduction of a 30% minimum tax on discretionary trusts from 1 July 2028. While the headline is straightforward, the detail is complex — and it is important to be direct about what is known, what is not known, and why the gap between the two matters for anyone who operates through or benefits from a discretionary trust.
What Has Been Announced
From 1 July 2028, trustees of discretionary trusts will be required to pay a minimum tax of 30% on the taxable income of the trust. Beneficiaries — other than corporate beneficiaries — will receive non-refundable credits for the tax paid by the trustee, similar in concept to franking credits. If the credit exceeds a beneficiary’s actual tax liability, the excess is permanently lost — it cannot be refunded.
What This Means in Practice
A family member with no other income who receives a $20,000 trust distribution would currently pay approximately $288 in tax. Under the new rules, the trust pays $6,000 in minimum tax on that income. The beneficiary receives a non-refundable credit of $6,000 against their $288 tax liability — with $5,712 permanently lost. The breakeven point falls at approximately $131,600 of income. Every beneficiary earning below that level results in some portion of the trust’s tax being unrecoverable.
What We Do Not Yet Know
The Budget announcement raises far more questions than it answers. What happens to corporate beneficiaries is not yet clear — it may mean no credit at all, resulting in double taxation. The announcement lists a number of exclusions, including primary production income, income relating to vulnerable minors, and income from discretionary testamentary trusts existing at the time of announcement. Each exclusion will require precise legislative definition. No assumption should be made until the legislation is released.
The Rollover Relief Window
The Budget confirms expanded rollover relief for three years from 1 July 2027, to support businesses and others wishing to restructure out of discretionary trusts. This provides a meaningful window to act before the minimum tax takes effect. Draft legislation is expected during the second half of 2026.
Note: This article is based solely on the Budget announcement of 12 May 2026. No legislation has been released. All details are subject to change and no planning decisions should be made on the basis of this announcement alone.
We cannot provide definitive advice on this measure yet — the legislation does not exist — but early engagement will maximise your options when it does.
Please contact us so we can begin reviewing your trust arrangements now and be ready to act quickly once the detail is confirmed.
