BUDGET REVIEW: Reforming the taxation of discretionary trusts

The Government will introduce a minimum 30% tax on discretionary trusts.

From 1 July 2028 (i.e., from the 2029 income year), trustees will pay a minimum tax of 30% on the taxable income of discretionary trusts. Beneficiaries, other than corporate beneficiaries, will receive non-refundable credits for the tax payable by the trustee.

Under the minimum tax, corporate beneficiaries will be assessed based on the trust income to which they are entitled, without being able to claim credits for tax payable by the trustee.

The minimum tax will not apply to other types of trusts such as fixed trusts, fixed testamentary trusts, complying superannuation funds, special disability trusts and deceased estates.

Some types of income such as primary production income, certain income relating to vulnerable minors, amounts to which non-resident withholding tax applies, and income from assets of discretionary testamentary trusts existing at announcement will also be excluded.

The Government will provide expanded rollover relief for three years from 1 July 2027 for small businesses and others that wish to restructure out of discretionary trusts into another type of entity, such as a company or fixed trust.