Discretionary trusts have long been part of the way Australian families and businesses manage wealth. They can play a role in succession planning, asset protection and investment ownership, while also giving trustees flexibility over how income is distributed among beneficiaries. The Federal Government’s latest tax reform proposal could significantly change how that flexibility works.
Under the 2026–27 Federal Budget proposal, discretionary trusts would face a 30% minimum tax on taxable income from 1 July 2028. The trustee would pay the tax before distributions are made. Non-corporate beneficiaries would still declare their share of trust income but receive a non-refundable credit for the tax already paid by the trustee. The policy is intended to reduce the tax benefits that can arise when trust income is distributed to family members on lower marginal tax rates.
There is an important caveat, though: the proposal is not yet settled in every detail. Treasury released an implementation consultation paper on 8 July 2026, with submissions closing on 31 July. As at August 2026, some aspects of the final design remain subject to the legislative process.
At present, discretionary trusts generally operate as flow-through structures. Beneficiaries who are presently entitled to trust income are typically assessed on their respective shares at their own tax rates. The proposed system would effectively introduce a 30% floor. Someone whose final tax liability exceeds 30% could still have additional tax to pay, while a beneficiary whose liability falls below 30% would not be able to obtain a refund for the excess trustee-level tax. That could substantially reduce the benefit of distributing income to low-rate beneficiaries.
The proposed treatment of corporate beneficiaries — often called “bucket companies” — is particularly important. Treasury proposes that companies would receive no credit for the minimum tax already paid by the trustee, while remaining assessable on the trust income to which they are entitled. The intention is to prevent the new minimum tax being sidestepped by directing distributions through corporate beneficiaries.
A few features deserve particular attention:
- The proposed 30% minimum tax would begin on 1 July 2028.
- Fixed and widely held trusts are intended to remain outside the regime, along with complying superannuation funds, special disability trusts, deceased estates and charitable trusts.
- Certain income would also be excluded, including qualifying primary production income and some testamentary trust income.
- A three-year period of expanded rollover relief is proposed from 1 July 2027 for eligible taxpayers restructuring out of discretionary trusts.
- Importantly, that rollover does not automatically eliminate state transfer duty, land tax or other restructuring costs.
Why fund managers are paying attention
Although the reform is aimed primarily at discretionary trusts and family income-splitting arrangements, the tricky part is defining exactly what counts as “discretionary”.
Australian tax law does not provide one simple definition that neatly captures every trust. Treasury’s consultation starts with existing trust-loss concepts involving beneficiaries having vested and indefeasible interests. Industry advisers have raised concerns that a sufficiently strict interpretation could reach beyond conventional family trusts and capture some commercial investment structures as well.
That matters because some property funds, unit trusts and other investment vehicles contain trustee discretions over matters such as distributions, unit issues and redemptions, amendments or capital allocation. A structure might operate commercially like a fixed investment vehicle but still struggle with a narrow statutory fixed-trust definition. Smaller wholesale funds and special-purpose property vehicles may also have difficulty satisfying a “widely held” exemption.
The NSW land tax question
For property investors, federal income tax is only one part of the equation.
In NSW, discretionary trusts are generally treated as special trusts for land tax purposes, which means they do not receive the ordinary land tax threshold. Qualifying fixed trusts can be treated differently.
That is exactly why restructuring should not be approached as a simple tax-saving exercise. Moving real estate from a discretionary trust into a company, fixed trust or another ownership structure could solve one problem while creating another — including transfer duty, land tax, financing, CGT or asset-protection consequences.
The proposed rollover window is therefore an opportunity to review existing arrangements, not a reason to start moving properties immediately. With the legislation still developing, review first; restructure only when the final rules and professional advice support doing so.
Flash Conveyancing Advice
If you already own property through a discretionary trust, don’t rush to transfer it simply because a 30% minimum tax has been proposed. Have the trust deed, federal tax consequences, NSW duty and land tax position considered together. If you’re buying, settle on the correct purchasing entity before exchange — fixing an ownership structure afterwards can be considerably more complicated and expensive.
Entity selection can initially look like something for the accountant. Once property is involved, however, it becomes a conveyancing issue too.
The purchaser named in the Contract for Sale matters, as does the capacity in which that purchaser is acting. An individual buying personally, a company acting as trustee and a trustee acquiring property for a particular trust are not interchangeable descriptions that can necessarily be corrected with a quick amendment after exchange.
Flash Conveyancing, led by Julian & Renee, takes a practical approach to trust and company property transactions. This means checking that the purchaser identified in the contract reflects the intended ownership structure, reviewing title documents and special conditions, and identifying issues that should go to an accountant or specialist tax lawyer before the buyer becomes committed.
The proposed discretionary trust reforms make that coordination particularly worthwhile. A trust structure that has served a family or investor well for years may remain entirely appropriate. Another may warrant reconsideration once the legislation is finalised. The important thing is not to restructure simply because the headline says “30% tax”, without first looking at the whole property and tax position.
NSW land tax is a good example. Most discretionary trusts are treated as special trusts without access to the general land tax threshold, while qualifying fixed trusts can receive different treatment. Trust deeds can also raise foreign-person surcharge issues where potential foreign beneficiaries have not been appropriately excluded. Federal CGT rollover relief does not make those state-based considerations disappear.
Flash Conveyancing assists buyers, sellers and investors throughout Sydney, Newcastle and Wollongong, as well as across Blacktown, Hawkesbury, Blue Mountains, The Hills, Hornsby and Parramatta.
Julian & Renee also assist clients in Acacia Gardens, Angus, Arndell Park, Blacktown, Colebee, Glendenning, Glenwood, Grantham Farm, Kellyville Ridge, Kings Langley, Marsden Park, Melonba, Oakhurst, Parklea, Quakers Hill, Riverstone, Schofields, Seven Hills, Stanhope Gardens, Tallawong, The Ponds, Baulkham Hills, Beaumont Hills, Bella Vista, Castle Hill, Kellyville, Kenthurst, North Rocks, Northmead, Rouse Hill, Vineyard, Windsor, Annangrove, Box Hill, Cattai, Dural, Gables, Galston, Glenhaven, Glenorie, Maraylya, Middle Dural, Nelson, North Kellyville, Norwest and Winston Hills, along with property transactions elsewhere across NSW.
Treasury’s proposal is significant, but it does not call for panic. Trust structures sit where federal tax, NSW land tax, transfer duty, asset protection and property law meet. The right structure is the one that works across that whole picture — not simply the one that produces the smallest tax figure on paper.
