Discretionary trusts and the proposed 30% minimum tax
- Future Accounting
- Aug 19
- 4 min read
Does Your Family Business Operate Through a Trust? Don't Restructure Until You Know the Full Cost
Written by: Melissa Cunliffe (CA)
If your family business operates through a discretionary trust, could the proposed new 30% minimum tax change the way you should structure your business?
It's a question many Australian family-business owners should now be asking.
The Australian Government has proposed significant changes to the taxation of certain discretionary trusts, including a proposed 30% minimum tax from 1 July 2028.
For some business owners, the immediate reaction may be:
"Should I get my business out of the trust?"
Our answer at 3P's Future Accounting is simple:
Don't panic. Don't restructure based on headlines. But don't ignore it either.
The right approach is to understand your current structure, model what the proposed rules could mean and consider your options well before the proposed commencement date.
Why do family businesses use discretionary trusts?
Discretionary trusts have been part of Australian family-business structures for decades.
Depending on individual circumstances, they can provide benefits including:
flexibility over distributions;
asset-protection advantages;
succession and estate-planning flexibility;
separation of business and personal assets; and
legitimate tax-planning opportunities within Australia's tax laws.
But a structure that worked well when it was established 10 or 20 years ago isn't automatically the best structure today. And proposed tax changes make reviewing these structures increasingly important.
What is being proposed?
The Government has proposed introducing a 30% minimum tax applying to certain discretionary trusts from 1 July 2028.
Treasury has indicated that more than 90% of small businesses are expected to be unaffected. The proposal also includes restructuring relief over a three-year period for eligible businesses.
However, industry organisations—including representatives of the building sector—have raised concerns about how the proposed rules could affect genuine family businesses operating through discretionary trusts.
And that distinction matters:
The proposal is not yet a reason to restructure your business.
Final legislation, eligibility rules and practical implementation can change before commencement.
The biggest mistake could be restructuring too early
Imagine a family building business that has operated successfully through a discretionary trust for 15 years. The owners hear about the proposed 30% minimum tax and immediately decide:
"We need a company."
But transferring a business isn't simply a matter of changing the name on an invoice.
The restructure could affect:
capital gains tax;
stamp duty;
existing finance;
contracts and licences;
asset protection;
retained profits;
Division 7A;
succession planning;
employee arrangements; and
the family's broader estate plan.
There may be rollover relief available. There may also be reasons why retaining the existing structure remains preferable. The answer depends on the individual business.
A tax-driven restructure that saves money in one area but creates greater costs or risks elsewhere isn't good planning.
Start with the numbers
Rather than asking: "Which structure pays the least tax?"
We believe business owners should ask: "Which structure best supports where our family and business are going over the next 5, 10 and 20 years?"
That requires looking beyond this year's tax return.
At 3P's Future Accounting, this aligns with our 3P's Future Prosperity Model: Preserve. Protect. Prosper.
PRESERVE
What happens to the wealth you've already created?
A family-business structure should consider:
succession;
retirement;
sale of the business;
death or incapacity;
bringing children into the business;
extracting accumulated wealth; and
estate planning.
Saving tax today isn't particularly valuable if the structure creates a major problem when the business is eventually sold or transferred.
PROTECT
Does your current structure appropriately protect business and family assets?
Consider:
Who owns the trading business?
Where are valuable assets held?
Are personal assets unnecessarily exposed?
What guarantees have directors or family members provided?
What happens if the business experiences financial difficulty?
Tax should never be considered without also considering risk.
PROSPER
Finally, does the structure support future growth?
Consider:
bringing in investors;
purchasing property;
borrowing;
acquiring another business;
employing family members;
expanding interstate; or
eventually selling.
Your business structure should support where you're going—not simply reflect where you were when it was established.
What should family businesses do now?
Not panic. Instead, use the proposed changes as a reason to conduct a proper business structure review.
For businesses operating through discretionary trusts, that means modelling:
what happens if the existing structure remains unchanged;
whether the proposed minimum tax is likely to apply;
the cost and benefit of alternative structures;
the tax consequences of restructuring;
asset-protection consequences;
finance and legal implications;
succession and estate-planning implications; and
the long-term position—not simply next year's tax bill.
Then, once the legislation is settled, you'll be in a position to make an informed decision.
The 3P's view
At 3P's Future Accounting, we don't believe business structures should be changed simply because of a headline. We believe they should be reviewed because circumstances change.
Tax laws change.
Families change.
Businesses grow.
Owners get older.
Succession becomes more important.
And strategies that made sense 15 years ago may no longer make sense today. The proposed trust reforms provide another reason to ask an important question: Is your current business structure still helping you Preserve, Protect, and Prosper?
If you don't know the answer, now is the time to find out.
Disclaimer
This article does not constitute financial advice and is for general information only. It does not take into account any individual’s personal objectives, situation or needs, and is not intended as professional advice. Any similarity to an individual’s personal circumstances and the examples provided in this article is purely coincidental. Any person acting upon such information without receiving specific advice, does so entirely at their own risk.
Authorisation under an Australian Financial Services Licence (AFSL) is not required in the provision of this article and the author plus Future Accounting Group Pty Ltd is not acting in its capacity as an Australian Financial Services Licence holder
Liability limited by a scheme approved under professional standards legislation.
