The Federal Government is introducing legislation to impose a minimum 30% tax on income generated through discretionary trusts, setting up a major political fight over one of Australia’s most widely used business and investment structures.
The changes are scheduled to take effect from July 2028 and are intended to prevent high-income households from reducing tax by distributing trust income among family members or other beneficiaries facing lower tax rates.
The government expects the measure to raise around A$4.5 billion in 2029-30.
Approximately 350,000 active small businesses used discretionary trusts in the most recent available financial year, although the government says fewer than 10% of small businesses would be affected in any individual year.
Exemptions create new debate
Family farms, deceased estates, charities and some other structures are expected to receive exemptions.
However, the Greens have raised concerns that payments from trusts to tax-exempt organisations could create an unintended loophole.
One issue involves private school fees, with concerns that wealthy families could potentially use exempt payments to education institutions to reduce the impact of the new tax.
Labor needs Greens support in the Senate because the Coalition opposes the proposal.
Business groups argue discretionary trusts are used for legitimate commercial purposes by pharmacies, builders, retailers, restaurants and other family-operated businesses.
The government maintains the reform primarily targets wealthier households using trusts for income splitting.
With more than 1 million trusts operating across Australia, the legislation represents one of the most significant changes to their tax treatment in decades.
