A 2026-27 Budget measure aimed at income splitting, and what it means for family trusts and small businesses.
The 2026-27 Federal Budget, handed down on 12 May 2026, announced a 30% minimum tax on discretionary trusts from 1 July 2028. The measure targets a long-standing feature of family trusts: the ability to split income across family members to lower the overall tax bill. It is a Budget announcement, not yet law, and the Government has said key aspects will be finalised after consultation. Here is how it is proposed to work and who it affects.
According to the ATO's summary of the measure, the minimum tax applies at the trustee level. The trustee will pay 30% tax on the taxable income of the trust, unless higher rates already apply. Beneficiaries still declare their trust income in their own returns, and non-corporate beneficiaries receive non-refundable credits for the tax the trustee has paid, which reduces their own tax. The effect is that trust income is not taxed at less than 30%, while avoiding double taxation for individual beneficiaries.
The Government's Budget tax explainer frames this as a fairness measure. It notes that a worker pays a 30% marginal rate on income between $45,001 and $135,000, while a discretionary trust can split the same income across family members on lower rates. Treasury analysis cited in the explainer found that in 2022-23 families with discretionary trusts faced an average tax rate around 4 percentage points lower than families with similar incomes who do not use a trust.
| Group | Budget estimate of impact |
|---|---|
| Discretionary trusts | Around half not expected to be affected in any given year |
| Individual taxfilers | More than 95% not affected in any given year |
| Small businesses | More than 90% not affected; about 350,000 use a discretionary trust |
| Receipts | Estimated to raise $4.5 billion over five years from 2025-26 |
Where a trust already distributes to non-corporate beneficiaries who pay 30% or more, there is no overall increase in tax. The bite falls on arrangements that channel income to people on low or nil marginal rates. The explainer notes that around 840,000 of Australia's roughly one million trusts are discretionary, and that most trust income flows to the highest-earning 10% of families.
The minimum tax will not apply to fixed and widely held trusts, complying superannuation funds, special disability trusts, deceased estates or charitable trusts. Certain income is also carved out, including primary production income, certain income relating to vulnerable minors, and amounts subject to non-resident withholding tax. To help affected trusts adjust, a time-limited restructure rollover will be available for three years from 1 July 2027, allowing assets to move out of a discretionary trust into a company or fixed trust without triggering income tax or capital gains tax. Small businesses can also reduce the impact by paying working family members a salary, which is not subject to the minimum tax, rather than a trust distribution.
Disclaimer: This article summarises a measure announced in the 2026-27 Federal Budget. Budget measures are subject to consultation and legislation and may change before they take effect. This is general information only and not financial or tax advice. Refer to the official Budget website and the ATO for current details, and consult a registered tax agent about your circumstances.