From 1 July 2028, trustees of discretionary trusts will pay a minimum 30% tax on taxable trust income. It's one of the most significant changes to small business and family group structuring we've seen in years, and if your group includes a trust, it's worth understanding now.
Here's how it works. The trustee calculates and pays the 30% minimum tax on the trust's taxable income for the year. Where income is distributed to an individual beneficiary, that beneficiary picks up the income in their own return and receives a non-refundable tax credit for their share of the 30% already paid by the trustee. If the beneficiary's marginal rate is higher than 30%, they top up. If it's lower, the credit washes against other tax liabilities but can't be refunded.
The kicker is what happens with distributions to bucket companies. Corporate beneficiaries get no credit. The 30% paid by the trustee is a sunk cost on top of the company's 25% or 30% rate when income is later distributed as a dividend. The classic "park income in a bucket company" strategy will be substantially less effective.
There's a limited 3-year transitional rollover that allows certain restructures (such as moving assets out of a trust into a company) without triggering CGT or stamp duty in some circumstances. The detail will come in the legislation, but the intent is clear: the government expects family groups to review and adjust before the rules bite.
So what should you do now?
- Review whether your trust still earns the right kind of income for your distribution strategy
- Map out the gap between the 30% trust minimum and the marginal rates of your usual beneficiaries
- Reconsider the role of any bucket companies in your group
- Watch for the rollover detail and use the 3-year window deliberately, not at the last minute
The trust isn't dead. For asset protection, succession planning, and accessing the small business CGT concessions, it remains valuable. But the tax arithmetic has changed, and so should your planning.
If you'd like us to model what this looks like for your group, get in touch.