We’ve Had Our Family Trust for 20 Years — Should We Be Worried About the New Tax Rules?
What family businesses should understand about the proposed minimum tax on discretionary trusts
Written by: Melissa Cunliffe (CA)
The question many families are asking
“Our accountant set up the family trust years ago. We have always used it. Do we need to change everything?”
For many business owners, the trust has become part of the family’s financial life: the business operates through it, it owns investments or it helps manage family wealth. Proposed tax changes make this a sensible time for a review — but not a reason to rush into changing the structure.
First, what is a family trust?
A family trust is generally a trust arrangement where a trustee holds assets or runs activities for beneficiaries. In a discretionary trust, the trustee has flexibility, within the trust deed and tax rules, to decide which eligible beneficiaries receive trust income. It is important to distinguish this from a company or a fixed/unit trust because different rules can apply.
What is the government proposing?
The Australian Government has released draft legislation for a 30% minimum tax on taxable income of discretionary trusts from 1 July 2028. Treasury says the trustee would pay the minimum tax, with a credit mechanism for eligible beneficiaries. The proposals include exclusions, notably for primary production income and certain types of trusts, and a potential election involving fixed distributions to pre-nominated beneficiaries. The final design could change. This is not yet a rule that requires every family trust to pay an additional 30% tax on top of existing tax.
Does every family trust have to pay more tax?
No. The proposal is more complicated than that, and an extra tax bill cannot be worked out by multiplying trust income by 30%.
The outcome would depend on the income, beneficiaries, existing tax treatment, available credits, exclusions and final law.
Treasury has indicated that most Australian small businesses would not be affected in a given year. Each trust still needs to be assessed on its own facts.
What we’re seeing in practice
Picture three families.
The first operates a small retail business through a discretionary trust and distributes income among family beneficiaries.
The second runs a farming business with primary production income.
The third holds investment assets in a family trust.
They all call their structure a “family trust”, but their exposure to the proposed reforms may differ significantly. This is an illustrative comparison, not a prediction of their tax outcomes.
Why not simply move the assets into a company?
Changing ownership is not just paperwork.
Depending on the assets and transaction, restructuring may raise capital gains tax, Victorian duty, lending, asset-protection, succession and administrative issues. A company may be appropriate in some situations but less flexible in others. There may also be options in the final rules that reduce the need to restructure.
A decision made purely to avoid a proposed tax measure could create a more expensive problem.
Five questions to ask about your trust
Why was the trust established, and does that reason still apply?
What assets and types of income does it hold?
Who are the beneficiaries, and how are distributions usually made?
Do you have unpaid present entitlements, company beneficiaries or other complex balances that need review?
How would any change affect succession, ownership, financing and the family’s long-term plans?
What should you do now?
Keep the trust deed, financial statements and distribution records together.
Check that the current structure still suits the family’s goals.
Ask for a scenario review once the legal position is sufficiently clear.
Avoid transferring assets or locking in a restructure based only on headlines or draft legislation.
A question for your family
If you were setting up your business and investments today, would you choose the same structure — and do you know why?
How 4P’s can help
At 4P’s Future Accounting, structure reviews start with the people involved and what they want to preserve, protect and build.
Tax is important, but so are control, family relationships, business risk and succession. A careful review can identify the right questions long before a major decision becomes urgent.
Concerned about how proposed trust tax changes could affect your family or business? Contact 4P's Future Accounting to discuss reviewing your existing structure, understanding potential implications and planning for the future.
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.
