Government moves to impose minimum 30% tax rate on discretionary trusts

Treasurer says change will better align tax treatment of income from assets and work

By LineZotpaper

Published16 October 2026

Read Time2 min

The federal government has introduced legislation to parliament that would impose a new minimum 30% tax rate on income from discretionary trusts, saying the change is about better aligning the tax treatment of income from assets and income from work.

The proposed changes target discretionary trusts, the most popular type of trust in Australia. Treasurer Jim Chalmers told parliament that more than 95% of taxpayers do not receive income from trusts, and that most trust income flows to the top 10% of households.

"This is all about better aligning the tax treatment of income from assets and income from work," he said.

Academics writing for The Conversation note that discretionary trusts can have legitimate uses, particularly for small businesses, but can also be used as a tax minimisation strategy by wealthy individuals.

Trusts are structures in which trustees look after assets for beneficiaries. Discretionary trusts are popular for three main reasons: asset protection, because trust property is protected from legal action against trustees and beneficiaries; estate planning, because control of the trust can be passed to future generations; and tax minimisation, because trustees can split income among beneficiaries, with tax paid at each beneficiary's rate.

The effectiveness of a trust in reducing tax depends on the number of beneficiaries and their incomes. Children under 18 who are not working full time face very high tax rates on unearned income above $416 per year. But wealthy families with non-working adult children can distribute income among those children to minimise tax, with each child using the tax-free threshold of $18,200.

Whether these uses are legitimate depends on perspective, the authors write. For most families, the amount of tax saved is generally small. Trusts can also be an easy way to operate a business separately from personal affairs, and they cost less to set up and administer than companies, while offering protection that partnerships do not.

Analysis

Why This Matters

Discretionary trusts are widely used by small businesses, so a minimum 30% tax rate could raise costs for legitimate operators as well as wealthy taxpayers.
The change is aimed at curbing income-splitting strategies that let wealthy families lower their effective tax rates.
The reform goes to the heart of how income from assets is taxed compared with income from work.

Background

Discretionary trusts are a long-standing feature of Australian tax and estate planning. Trustees manage assets for beneficiaries and have discretion over how income is distributed each year. Because tax is paid at the beneficiary's rate, income can be allocated to those with the lowest marginal rates. This makes trusts attractive for asset protection, generational estate planning and tax minimisation. The government's proposal would impose a minimum 30% tax rate on trust income, limiting the benefit of such distributions.

Key Perspectives

Government and Treasurer: Argue the measure is about fairness, noting most Australians receive no trust income and that most such income flows to the top 10% of households.

Trust users and small business advocates: Point to legitimate uses of trusts, including asset protection, business separation and estate planning, and warn the changes may go beyond wealthy tax avoiders.

Tax experts and critics: Note that trusts can be used as a tax minimisation strategy, particularly through distributions to low-income adult beneficiaries, but add that for most families the amount of tax saved is generally small.

What to Watch

The progress of the legislation through parliament and any amendments.
Whether exemptions or carve-outs are introduced for small businesses.
How trustees respond in the months before the proposed rate takes effect.

Sources

The government wants trusts to pay a minimum 30% tax. What’s behind the changes? — The Conversation – Articles (AU)