The new trust tax bills are here. What small business owners should start thinking about.

The proposed rules would make sure certain discretionary trust income bears at least 30% tax.

The main thing to understand is that this isn’t another 30% tax on top.

Broadly, it works as a top-up.

If no other trustee-level tax applies to the relevant minimum tax income, the trustee pays 30%. If other trustee-level tax applies below 30%, the trustee pays the shortfall.

If the relevant income is already taxed at 30% or more at trustee level, there is no further minimum tax on that amount.

For eligible individual and other non-corporate beneficiaries, the Bill provides a non-refundable tax offset equal to 30% of their share of minimum tax income. The trustee’s tax is not calculated by topping up the beneficiary’s marginal tax rate.

That means one of the traditional advantages of discretionary trusts is being reduced.

For a long time, family trusts have given families flexibility around who receives income each year.

If one beneficiary is on a lower tax rate than another, that could produce a lower overall tax outcome.

Under these proposed rules, distributing relevant trust income to someone on a tax rate below 30% will generally not produce the same benefit.

The proposed rules do not simply impose a 30% tax on every trust.

The first thing we need to do is work out which trusts are actually caught.

The legislation contains a number of exclusions and special rules.

Excluded trust categories include, depending on the circumstances:

• fixed trusts
• complying superannuation entities
• special disability trusts
• deceased estates

There are also separate exclusions for certain income, rather than blanket exclusions for the whole trust. These include, subject to the Bill’s conditions:

• certain income from testamentary arrangements
• some primary production income
• certain income relating to vulnerable minors
• certain income attributable to exempt beneficiaries

These are not exhaustive lists.

The proposed fixed-trust definition covers trusts where beneficiaries have fixed entitlements to all income and capital, or where no material discretionary elements can significantly affect their income or capital rights. A unit trust is not automatically excluded just because it is called a unit trust.

So I would not look at the name of the entity in Xero and assume we know the answer.

We need to look at the actual structure.

This is probably one of the areas we will spend a fair bit of time on.

A lot of private groups use a corporate beneficiary, or what is commonly called a bucket company.

The trust distributes income to the company and the company pays tax at the applicable corporate rate.

That can allow profits to remain within the broader family group rather than all of the income being distributed to individuals.

Under the proposed rules, corporate beneficiaries do not receive the non-refundable minimum tax offset available to non-corporate beneficiaries.

That means existing bucket-company arrangements need to be modelled properly.

I would not assume that a strategy that has worked for the last ten years continues to produce the same result from 1 July 2028.

For some clients, keeping the existing discretionary trust and accepting the new tax treatment may still make sense.

A trust may exist for reasons that have nothing to do with distributing income to the lowest-tax family member.

There may be reasons around:

• asset protection
• succession
• estate planning
• ownership
• business sale planning
• family wealth

Tax is only one part of the structure.

For some groups, the additional tax cost may be less important than the other things the trust is doing.

The Bill also proposes an option for some existing discretionary trusts to elect out of the minimum tax regime.

An eligible trust must exist on 1 July 2028. The election must be made between that date and the end of its first income year starting on or after that date. For a trust with a usual 30 June year-end, that means the 2028–29 income year. The ATO must be notified by the earlier of the return’s due date and its actual lodgement date.

The trust would nominate eligible beneficiaries or eligible classes of beneficiaries, with matching fixed shares of income and non-income earnings totalling 100%.

It must comply with the election rules to remain outside the minimum tax. Changes are limited, including rules for death and relationship breakdown, and the Commissioner has discretion in limited circumstances. Revocation or non-compliance can bring the trust back into the minimum tax regime. A revoked election cannot simply be made again, and the election is unavailable where the relevant restructuring rollover applies.

The trust can still legally be a discretionary trust.

But from a tax perspective, a lot of the annual flexibility is gone.

That is a fairly significant trade-off.

One of the reasons people use family trusts is because the family situation changes.

One child may be at university one year and earning good money the next.

Someone may join or leave the business.

A beneficiary may get married.

The family may want to change how capital is ultimately distributed.

If you make an election that fixes the economic allocation between nominated beneficiaries, you need to understand what flexibility you are giving up.

For a lot of clients, this is going to need both tax and legal advice.

The other option is to move out of the discretionary trust altogether.

The Bill proposes a restructuring rollover period from:

1 July 2027 to 30 June 2030.

The idea is to allow qualifying trusts to move relevant assets into another structure without triggering the normal immediate federal income-tax consequences that could otherwise arise.

Depending on the client, that might mean moving into:

• a company
• an eligible fixed trust
• another structure that meets the rollover conditions

The rollover requires all relevant assets to leave the discretion-based structure, subject to specified exceptions. It is not a concession for picking a few assets to move. The parties must meet the choice, notification, continuity and residency requirements. Exempt entities, complying superannuation entities and trustees of minimum tax trusts cannot receive assets under this rollover, and the rules restrict material discretionary outcomes in the new structure.

On paper, that sounds pretty good.

But this is where I think a lot of the real work will be.

Federal income-tax rollover relief does not automatically get rid of:

• stamp duty
• GST
• legal costs
• refinancing costs
• bank approvals
• asset transfer costs
• finance consequences
• commercial issues around changing ownership

That matters.

Think about a family trust that owns:

• the trading business
• commercial property
• motor vehicles
• goodwill
• shares
• intellectual property

Moving that structure around can be a big job.

Before we tell a client to restructure, we need to know exactly what the trust owns, what those assets are worth and what moving them will actually cost.

The minimum tax is proposed to start from 1 July 2028.

But the proposed rollover starts from 1 July 2027.

So the planning work starts earlier.

There will be clients where it makes sense to restructure.

There will be clients where the election makes more sense.

There will be clients where nothing changes.

And there will be plenty where keeping the existing trust is still the right answer.

What I do not want is for a client to ring us in June 2028 and say:

“I heard family trusts are taxed at 30% now. What are we doing?”

For a simple structure, maybe we can deal with that quickly.

For a larger private group with property, debt, multiple entities and 20 years of history behind it, that is too late to start.

The other thing accountants need to start thinking about is the structures we establish from here.

For years, a common structure has been some variation of:

Family trust → company

or

business operated through a family trust.

There have been good reasons for that.

There may continue to be good reasons for it.

But we should not keep setting up structures simply because that is what we have always done.

If I was establishing a new business today, I would want to know:

• where profits are expected to sit
• whether profits will be retained for growth
• whether family distributions are actually important
• asset-protection requirements
• future sale plans
• small-business CGT concession issues
• succession plans
• ownership changes
• how much flexibility the family actually needs

For some operating businesses, a company may become relatively more attractive.

For others, a trust may still make perfect sense.

There is no one answer.

For affected clients, we are going to need the actual trust deed.

Not just the entity name in Xero.

Not just the tax return.

The deed.

We need to know:

• who the beneficiaries are
• whether companies are included
• what powers the trustee has
• how capital can be distributed
• whether the deed has been varied
• whether the trust may meet the new fixed trust rules
• what succession provisions exist

A tax return will not tell us enough.

For clients who might restructure, we also need to know what the trust actually owns.

That sounds basic.

It is not always.

A family group may have accumulated assets over 20 years.

There may be:

• commercial property
• old investment properties
• shares
• business goodwill
• loans
• related-party balances
• depreciating assets
• intellectual property
• pre-CGT assets
• assets moved between entities over time

What this means in practice is that we need better records around when assets were bought, what they cost and what has happened to them since.

That work is much easier to do before a restructure is under way.

The trust tax changes are going to get most of the attention from private business owners, but Tax Reform No. 3 also includes further CGT amendments.

These deal with areas including:

• trusts
• MITs and AMITs
• gains that straddle the 1 July 2027 commencement date
• part-year Australian residents
• certain deferred CGT events

For most small-business clients, I would keep this fairly simple.

We need to know when assets were acquired, what the cost base is and what entity actually owns them.

That information is becoming more important.

The Bill also contains further changes connected with the new negative gearing rules.

That includes more detail around what qualifies as a new residential dwelling and special treatment for certain housing arrangements.

For clients with residential investment property, we will need to look at:

• which existing properties are grandfathered
• what happens with future acquisitions
• whether a property falls within one of the special categories
• how the negative gearing changes interact with the new CGT rules

Again, this is not something I would panic about today.

But it is another reason we need good records.

The Bill includes transitional relief linked to the first year of Payday Super.

Payday Super started from 1 July 2026.

The change in contribution timing can create an unintended excess-contribution issue for some employees.

The Bill includes one-off relief designed to deal with that.

For most small businesses, this won’t be the main issue.

But for business owners and highly paid employees already close to their concessional contribution cap, it is worth checking.

I am not interested in moving structures around before the law is settled.

What I am interested in is understanding which clients actually need attention.

For every discretionary trust in a private group, I think we should know:

Why does the trust exist?

Is it operating the business?

Does it own investments?

Is it a shareholder in an operating company?

Does it distribute to a bucket company?

Who normally receives the income?

Are any beneficiaries regularly on tax rates below 30%?

Does it own property?

What are the unrealised gains?

What would stamp duty look like if assets moved?

Would finance need to be changed?

Is succession likely in the next five or ten years?

Would a company structure work better?

Would the proposed election remove too much flexibility?

Those are the questions I want answered before we start talking about restructuring.

There is a difference between starting the work and making the decision.

The Bills are still before Parliament.

They may change.

There will likely be more guidance.

There may be amendments through the parliamentary process.

So I would not spend thousands of dollars changing structures today.

But I would not leave it until 2028 either.

The sensible thing is to understand the existing structure now.

Then once the law is settled, we already know what the options look like.

There will probably be plenty of headlines over the next year saying:

“Family trusts are dead.”

I do not think that is helpful.

A trust can still serve plenty of commercial purposes that have nothing to do with distributing income to the lowest-tax family member.

Depending on the circumstances, trusts may still be useful for:

• asset protection
• succession
• ownership
• estate planning
• business sales
• family wealth

What is changing is some of the tax flexibility.

That means we need to look at the structure as a whole.

If you have a discretionary trust somewhere in your business or investment structure, there is no reason to panic.

But I also would not ignore this until 2028.

The first job is just to understand what the trust actually does, who it distributes to, what it owns and what it would cost to change anything.

Some clients may not need to do anything.

Some may end up making an election.

Some may restructure.

We do not know that yet.

What I do know is that I would rather have that work done before the law starts than be trying to work it all out at the last minute.

As at 20 October 2026, the two Bills have been introduced into Parliament but have not yet become law.

They have been referred to the Senate Economics Legislation Committee, which is due to report on 13 November 2026.

That position may change during the parliamentary process.