Trust Tax Reform: What Business Owners Need to Know Before 2028

A proposed 30% minimum tax changes the planning equation.

From 1 July 2028, the Government proposes to introduce a minimum tax rate of 30 per cent on the taxable income of discretionary trusts, subject to a number of exclusions.

Under the Government's current implementation model, the trustee would pay the minimum tax. Individual and other non-corporate beneficiaries would generally receive a non-refundable credit for tax paid by the trustee, while corporate beneficiaries would not receive that credit.

That distinction is particularly important for private groups that have historically distributed trust income to corporate beneficiaries, often referred to as bucket companies.

Depending on the final legislation and the way income ultimately moves through a group, layered taxation may produce materially different outcomes from the current regime. Accordingly, existing corporate-beneficiary strategies will need to be reviewed well before 1 July 2028.

Avoid treating consultation as final legislation.

One of the most important distinctions for clients is that the reform package is progressing at different stages.

The capital gains tax and negative-gearing measures have been legislated. Their principal commencement date is 1 July 2027.

The discretionary-trust minimum-tax policy has been announced for commencement from 1 July 2028, but Treasury consultation has continued on important implementation matters including exclusions, rollover relief, charitable distributions, franking credits and collection mechanisms.

That means detailed modelling of a client's future position should distinguish between enacted law, announced policy and implementation details that may still change.

1 July 2027 becomes a critical valuation date.

The enacted CGT reforms replace the existing 50 per cent discount for relevant future gains with cost-base indexation and a 30 per cent minimum tax on gains accruing from 1 July 2027.

For affected assets already held at that date, the rules effectively separate the gain that accrued before 1 July 2027 from the gain accruing afterwards.

The legislation provides for market-value treatment at the transition point, with an alternative apportionment method contemplated under the rules.

This does not necessarily mean every taxpayer needs to obtain a valuation immediately on 30 June 2027. However, businesses and investors holding private companies, trusts, property and other difficult-to-value assets should begin considering what evidence will be available if a future valuation is required.

Negative gearing becomes more targeted.

From 1 July 2027, negative gearing for residential property will generally be limited to eligible new builds.

Existing investments acquired before the Government's announcement at 7:30pm AEST on 12 May 2026 are protected by transitional arrangements.

For established residential property acquired after that time, rental losses will generally no longer be deductible against unrelated income such as salary and wages. Instead, those losses may be quarantined and applied against relevant residential-property income and gains, or carried forward subject to the legislation.

Investors considering acquisitions should therefore assess after-tax cash flow rather than relying solely on historical negative-gearing assumptions.

Changing structure is rarely just a tax exercise.

The possibility of a higher effective tax burden does not automatically mean a discretionary trust should be unwound or replaced with a company.

A restructure may involve capital gains tax, state transfer duty, financing arrangements, contract novations, banking, payroll, employment arrangements, insurance, asset protection and commercial agreements.

In practice, changing the entity through which an established business operates can resemble a business sale from an operational perspective.

Treasury has announced expanded rollover relief for three income years beginning 1 July 2027 for businesses and individuals that choose to restructure from discretionary trusts. The availability and suitability of any relief will, however, depend on the final rules and the client's circumstances.

Tax remains only one part of the structure.

Discretionary trusts continue to have legitimate non-tax purposes, including succession flexibility, asset protection, family wealth management and separation of business and personal assets.

Similarly, companies may provide advantages for operating businesses, including clearer separation of trading risk and retained earnings.

For many private groups, an appropriate structure may involve a trading company with shares held through a holding company or discretionary trust. There is no universal model.

Structure recommendations should remain driven by commercial objectives, asset protection, succession, financing and compliance requirements — with tax considered as part of that broader analysis.

Preparation can begin without rushing the decision.

The next two years require planning, not panic.

These reforms are significant, particularly for private groups that have relied on discretionary trusts and corporate beneficiaries as part of their long-term structure.

But a tax change should not be considered in isolation. The cost of changing a structure can be substantial, and trusts may continue to serve important commercial, succession and asset-protection purposes.

The priority now is to understand the current position, identify the critical dates and build enough flexibility into planning to respond as the legislative framework becomes clearer.