New 30 per cent trust tax creates significant challenges for private groups

This change will not only add unwelcome further complexity to an already intricate tax system for trusts – introducing and expanding minimum tax regimes could have broader implications for our economy.

In the 2026 Federal Budget, the Government announced that from 1 July 2028, trustees of discretionary trusts will be subject to a 30 per cent tax on the trust’s taxable income. 

Beneficiaries will still be assessed on their share of a trust’s taxable income in the usual manner, but will be entitled to a non-refundable credit for the trustee tax paid. Because the credit is non-refundable, where a beneficiary’s marginal tax rate is less than 30 per cent, trust income will bear a minimum tax impost of 30 per cent (or 32 per cent with the Medicare levy).

By comparison, the company tax and franking credits system enables an individual shareholder to receive a refund of tax if their income tax applicable to a franked dividend is lower than the franking offset attaching to that dividend.

Corporate beneficiaries will not be entitled to a credit for the trustee tax paid, resulting in double taxation. Companies paying tax to discretionary trust shareholders will have their franking credits used against the trustee tax, converting otherwise refundable franking credits into non-refundable trustee tax credits.

Consultation paper

On 8 July 2026 Treasury released a consultation paper providing further detail on the design of the new tax. Submissions were due by 31 July, allowing a relatively short period to analyse the paper and prepare submissions. 

A number of concerns have been raised about the new minimum 30 per cent tax, especially the commercial disadvantages it will impose on small-to-medium business that do not apply to larger corporate groups.

Grant Thornton submission

Our submission on the consultation paper highlighted a range of concerns with this policy, including:

• The policy is essentially treating a symptom of the underlying cause, being our over-reliance on income tax.
• The scope of trusts subjected to the minimum 30 per cent tax remains uncertain and could extend to many unit trusts that fall outside the strict definition of ‘fixed trust’. Concerns were also raised over the application to special purpose discretionary trusts, child maintenance trusts, professional firm trust accounts and testamentary trusts.
• A profitable trust appointing income to a loss trust within the same family group will not achieve the intended outcome of utilising those losses, as the minimum 30 per cent tax will still apply to the profitable trust.
• Appointing trust income to a corporate beneficiary will result in double taxation, with an effective tax impost of up to 69.71 per cent. In practical terms, using a corporate beneficiary will no longer be viable. It would be less costly to appoint trust income to an individual beneficiary on the top marginal tax rate of 47 per cent (including Medicare levy). 
  
  However, this disadvantages family groups that typically use corporate beneficiaries for asset protection and succession planning that enable the future transmission of wealth to younger generations.

• A three-year window will be available to transfer assets from a trust to a new structure under an expanded capital gains tax (CGT) roll-over. However, the roll-over is inflexible, as it will be available only where all assets of a trust are transferred. 
• Transferring business assets (QLD/WA) and land (all jurisdictions) from a trust to a new structure may trigger significant stamp duty liabilities. Combined with substantial restructuring costs, this will make many restructures prohibitively expensive.  
• Ahead of 1 July 2028, private groups will need to choose between the following equally unattractive options:

1. 1. Retain their existing trust structure and suffer an after-tax profit reinvestment rate as low as 53 cents in the dollar; or
   2. Restructure to a new vehicle and incur significant stamp duty and restructuring costs while at the same time potentially forgoing asset protection for family wealth by removing family discretionary trusts from their structures.

Large corporate groups retain advantages

In contrast to the above, larger tax-consolidated corporate groups can continue to offset losses in one company against profits in another, retain profits after tax at 70 or 75 cents in the dollar, and freely transfer selected assets between group companies with no income tax or CGT consequences, often supported by available stamp duty exemptions.

It is difficult to reconcile why small-to-medium businesses and private groups should lose the benefit of these commercial advantages while larger corporate groups continue to enjoy them.

Recommendations

Our submission observed that the policy is unnecessarily complex and may result in a number of punitive and unreasonable outcomes. Accordingly, we recommended that the government reconsider the policy in its entirety, including how trusts are taxed as a whole and whether the introduction of a minimum tax would achieve real policy objectives.

Alternatively, if the policy proceeds, our recommendations include:

• Impose the minimum tax at the beneficiary level, rather than the trustee level, by way of a ‘top-up’ tax similar to the approach adopted for capital gains from 1 July 2027.
• Where a trust has made a Family Trust Election, the minimum tax is not imposed on trust income appointed to another trust that is within the same family group, thereby preserving the ability to utilise losses in the recipient trust.
• Allow corporate beneficiaries a non-refundable credit for the trustee tax paid, with a corresponding franking credit recorded in a separate franking account. Franking credits from this account allocated to a dividend paid by the company are non-refundable.
• Consider providing trusts with a mechanism to be taxed on the basis of nominated beneficiaries rather than going through an expensive restructure.
• Work with the states and territories to encourage them to provide stamp duty relief that complement this policy.
• Undertake genuine, holistic tax reform, including longer-term consideration of tax-mix reform. Such reform would address many of the underlying causes of disfunction within the tax system and reduce the need for policies aimed at treating their symptoms.

How we can help

We are continuing to assess the practical implications of this policy and the options that may be available in different circumstances.  This analysis will inform future discussions with clients so that informed decisions can be made ahead of 1 July 2028.

In the meantime, please contact your trusted Grant Thornton adviser to discuss any aspects of this policy. 

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