2026/27 Federal Budget: Proposed Changes to Discretionary Trust Taxation

Elizabeth Kealy • May 27, 2026

While much of the media attention surrounding the 2026 Federal Budget has focused on housing affordability and negative gearing, one of the most significant proposed tax changes for small business owners has received far less coverage — the taxation of discretionary trusts.

For many family businesses, farms, and professional practices, these proposed changes could materially alter how income is taxed in the future.

Introduction

One of the most significant announcements from the 2026 Federal Budget is not directed at large multinational corporations or major public companies. Instead, it targets structures commonly used by everyday Australian small businesses and families.

From 1 July 2028, discretionary trusts are proposed to be subject to a minimum 30% tax on taxable income, fundamentally changing the way trust distributions are taxed.

What Has Been Announced?

Under the proposed measures announced in the 2026 Federal Budget:

  • Discretionary trusts will be subject to a minimum 30% tax on taxable income
  • The trustee will withhold and remit this tax
  • Beneficiaries will receive a non-refundable tax credit for tax already paid by the trust

While further legislative detail is still to be released, the proposed framework represents a major shift away from the current flow-through taxation model traditionally applied to discretionary trusts.

Why This Matters for Individual Beneficiaries

Under the current system, trust distributions to individuals are taxed at the beneficiary’s marginal tax rates. This allows beneficiaries to access lower tax brackets, including the tax-free threshold and lower marginal rates on income up to certain thresholds.

Under the proposed rules, much of this flexibility appears likely to disappear. Even beneficiaries with total taxable income below current lower tax thresholds may effectively bear tax at the minimum 30% rate on trust distributions.

For many families, this could significantly increase overall tax liabilities where trusts have historically been used for legitimate income distribution and family succession planning purposes.

Why Small Businesses Could Be Most Affected

Discretionary trusts remain one of the most common business structures used by small businesses across Australia, including:

  • Farming operations
  • Trades and construction businesses
  • Professional practices
  • Family-run enterprises
  • Investment and asset-holding structures

While paying wages instead of trust distributions may assist in reducing the impact of the proposed measures, this approach can introduce additional compliance obligations and operating costs for businesses that do not currently employ staff.

These may include:

  • Payroll software and processing costs
  • Payday superannuation compliance
  • Single Touch Payroll (STP) reporting
  • WorkCover and payroll tax considerations
  • Additional administrative requirements

Concerns Around ‘Bucket’ Companies

Another major concern relates to trust distributions to corporate beneficiaries, commonly referred to as “bucket companies”.

Based on information released to date, companies do not appear to receive access to the proposed non-refundable tax credit attached to trust income. This raises the potential for double taxation and may significantly undermine longstanding tax planning strategies used to smooth income over multiple financial years and retain profits for future business or family needs.

Impact on Existing Company and Trust Structures

Many small business groups currently operate through a company structure where the shares in the company are owned by a discretionary trust.

Historically, this structure has provided flexibility for:

  • Family succession planning
  • Asset protection
  • Income distribution
  • Long-term business planning

While companies may continue paying franked dividends to trusts, distributions from the trust to individual beneficiaries may still be subject to the proposed minimum 30% tax outcome — even where the underlying income originated from ordinary business profits.

Example

Consider a family business earning $120,000 through a discretionary trust.

Under the current rules, the income may be distributed between two individuals, resulting in taxable incomes of $60,000 each. Based on current tax rates (excluding Medicare levy and offsets), the combined tax payable would be approximately $17,576.

Under the proposed measures, the same $120,000 distributed through the trust could result in tax of $36,000 — an increase of approximately $18,424.

For active business operations, consideration may need to be given to paying commercial wages to working family members to reduce exposure to the proposed minimum trust tax rules.

However, where trust income is primarily derived from passive investments, the ability to justify wage payments may be significantly more limited.

What this means going forward

Although these proposed measures are not scheduled to commence until 1 July 2028, and substantial legislative detail is still outstanding, the potential implications for small business owners, farming families, and discretionary trust structures are significant.

Clients currently operating through trusts, or businesses considering future structuring decisions, should closely monitor developments as further information becomes available.

This article contains general information only and does not constitute taxation or financial advice. Independent professional advice should be obtained based on your individual circumstances.

2026/27 Federal Budget : Major Proposed Capital Gains Tax Changes Ahead

By Elizabeth Kealy • May 27, 2026
Capital Gains Tax (CGT) – What’s Changing? If you own investments such as property, farmland, shares, or a business, Capital Gains Tax (CGT) is an important area to understand — especially with major proposed changes from 1 July 2027. What is Capital Gains Tax? Capital Gains Tax is the tax you pay when you make a profit from selling an asset. This could include: Investment properties Land & Farmland Shares Businesses Other investments Your capital gain is generally: Sale price minus what the asset originally cost you, including certain buying and selling costs. If you make a profit → you may pay CGT If you make a loss → the loss can usually be carried forward to offset future capital gains Current CGT Rules Under the current system, if you own an asset for more than 12 months, you may receive a discount on the taxable gain. Currently: Individuals and trusts generally receive a 50% CGT discount Superannuation funds generally receive a 33.33% discount Example If you make a $100,000 capital gain: Under current rules, you may only pay tax on $50,000 That discounted gain is then added to your taxable income and taxed at your normal marginal tax rates. Proposed CGT Changes From 1 July 2027 The Government has proposed significant changes to how Capital Gains Tax will work in the future. 1. The 50% Discount May Be Removed For assets purchased from 1 July 2027: The current 50% CGT discount may no longer apply Instead, asset costs may be adjusted for inflation (known as indexation) This means tax would apply only to the “real” gain above inflation. 2. A New Minimum 30% Tax Rate Under the proposed rules: A minimum 30% tax rate may apply to capital gains What this means: If your normal tax rate is below 30%, you may still pay 30% If your tax rate is higher than 30%, your normal rate may apply 3. Existing Assets Will Be Split Into Two Periods If you already own assets before 1 July 2027: The current rules may apply to gains earned up until 30 June 2027 The new rules may apply to any future growth after that date This may mean valuations at 1 July 2027 become important for some investors. 4. Pre-1985 Assets May No Longer Be Fully Exempt Currently: Assets purchased before 20 September 1985 are generally exempt from CGT Under the proposed changes: Future growth in these assets from 1 July 2027 onwards may become taxable Growth before that date is expected to remain exempt 5. Special Rules for New Residential Property To encourage housing construction: Investors in newly built residential properties may be able to choose between: The current 50% discount method, or The new indexation method with the minimum 30% tax rate What This Means for You These proposed changes could affect: Property investors Share investors Business owners Family groups and trusts Some important things to consider: The timing of selling investments may become more important Asset valuations at 1 July 2027 may be needed Some taxpayers may pay more CGT than under the current rules Long-term investment strategies may need reviewing Final Thoughts Capital Gains Tax has always been a complicated area, and these proposed changes could significantly affect future investment decisions. If you own, or are considering selling: Investment property Land & Farmland Shares A business Please call our office Importantly, these measures are still only proposed changes and will need to pass Parliament before becoming law.

2026/27 Federal Budget Recap – Key Changes in Simple Terms

By Elizabeth Kealy • May 27, 2026
Property Investors – Negative Gearing Changes From 1 July 2027, negative gearing rules are proposed to change for future residential investment properties. What’s changing? Negative gearing will only apply to newly built residential properties purchased after 12 May 2026. For existing residential properties purchased after this date, rental losses will no longer reduce your wage or other income. Instead, those losses will be carried forward and used against future rental profits or capital gains. Important: If you already own an investment property before 12 May 2026, these changes will not affect you. What this means for you: Future property investments may need more careful planning and cash flow consideration. These changes do not apply to self-managed super funds (SMSFs), commercial properties, or shares. Capital Gains Tax (CGT) Changes From 1 July 2027, the current 50% CGT discount is proposed to change for newly purchased assets. What’s changing? The 50% CGT discount will no longer apply to assets purchased from 1 July 2027 onwards. Instead, asset costs will be adjusted for inflation (indexation). A minimum 30% tax rate may apply to capital gains after indexation. Important: Assets purchased before 1 July 2027 will keep the current 50% discount on gains accrued up until that date. What this means for you : Selling investments such as property or shares in the future may result in higher tax than under the current rules. Companies and SMSFs are not affected by these proposed changes. Discretionary Trust Changes From 1 July 2028, discretionary trusts (commonly known as family trusts) may face new tax rules. What’s changing? Trust distributions may be taxed at a flat 30% rate. Beneficiaries will receive a tax credit for tax already paid by the trust. Some trusts are excluded, including super funds, deceased estates, fixed trusts, primary production income, and existing testamentary trusts. What this means for you: Trusts will still provide asset protection and succession planning benefits, but they may become less effective for reducing overall family tax. There is still time before these rules commence, and restructure relief is expected to be available if changes to your business structure are needed. Business Owners What’s changing? The $20,000 instant asset write-off is now proposed to become permanent. Businesses may have the option to pay PAYG instalments monthly instead of quarterly. What this means for you: This provides more certainty when purchasing business assets and may assist with managing business cash flow. Salary & Wage Earners What’s changing? A new $250 tax offset is proposed from the 2027–28 financial year. Employees may be able to claim up to $1,000 of work-related deductions without keeping receipts. Medicare levy low-income thresholds will increase. What this means for you: Most employees may receive small tax savings and a simpler tax return process. Medicare Levy Threshold Increases