Government Sets 30% Family Trust Tax Rate From 1 July 2028
The family trust tax rate will move to a 30 per cent minimum on discretionary trust distributions from 1 July 2028. Trustees of discretionary trusts will pay that rate on the trust’s taxable income, and the change will hit corporate beneficiaries and people on tax rates below 30 per cent first.
Beneficiaries other than companies will receive a non-refundable credit for tax paid by the trustee. If their own tax rate is above 30 per cent, they will pay top-up tax; if it is below 30 per cent, the excess credit will be lost.
Discretionary trusts face 30 per cent
30 per cent is the floor the Government has set for trust distributions under the new rules. All users of discretionary trusts will be affected, but the impact is sharper for structures that distribute to corporate beneficiaries or to individuals with marginal tax rates below 30 per cent.
Corporate beneficiaries will not receive a credit for tax paid by the trustee, according to the Budget papers. The Government says that design is meant to produce double taxation and stop corporate beneficiaries being used to get around the minimum tax.
Budget papers shut loopholes
Complex trust structures are also in scope, including layers of discretionary trusts and companies. That reaches beyond simple family arrangements and into structures commonly used for business and investment, including by small private enterprises and large family groups.
The measure excludes primary production income, fixed trusts, widely held trusts, superannuation funds, special disability trusts, deceased estates, certain testamentary trusts and charitable trusts. Testamentary trusts established after budget night are intended to be caught by the rules, and no grandfathering applies.
1 July 2028 rollout
From 1 July 2028, trustees of discretionary trusts will pay the minimum 30 per cent tax on the trust’s taxable income. The Budget papers also say rollovers will be made available for eligible taxpayers who want to restructure out of a discretionary trust.
For readers using discretionary trusts now, the immediate issue is structure. Trusts that rely on corporate beneficiaries, or on distributions to people taxed below 30 per cent, face the biggest change in how income will be taxed once the new regime begins.
