Trust Distribution Tax Changes
Note: This article is based solely on draft legislation released at 24 September 2026. All details are subject to change and no planning decisions should be made on the basis of this update alone.
The 2026-27 Budget announced 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 may 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 original announcement listed 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 assumptions should be made until complete legislation is released.
We cannot provide definitive advice on this measure yet — the legislation is not finalised — but early engagement will maximise your options when it is.
Please contact us so we can begin reviewing your trust arrangements now, and be ready to act quickly once the detail is confirmed.
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