30% Minimum Tax on Trust Distributions: What the 2026 Budget Announced

One of the most consequential announcements in the 2026 Federal Budget for small business owners and family groups was the proposed introduction of a 30% minimum tax rate on discretionary trust distributions to adult beneficiaries. If legislated as announced, this measure will fundamentally alter the tax efficiency of one of Australia's most widely used business and wealth structures.

Discretionary (family) trusts have long been a popular structure for Australian small businesses and investors because of the flexibility they offer in distributing income. A trustee can allocate income each year to beneficiaries in proportions that minimise the overall tax paid by the family group — for example, directing income to a spouse, adult child, or related entity on a lower marginal tax rate.

This income-splitting flexibility has been a legitimate and widely used tax planning tool. The 2026 Budget announcement signals the Government's intention to place a floor on the tax rate that applies to these distributions.

The Budget proposed that distributions from discretionary trusts to adult beneficiaries (aged 18 and over) will be subject to a minimum effective tax rate of 30%, regardless of the beneficiary's actual marginal tax rate.

Key elements of the announcement include:

• Minimum rate of 30%: If a beneficiary's marginal tax rate is below 30% (for example, a young adult earning minimal other income), the trust will be required to withhold or account for tax at 30% on the distribution.
• No change for corporate beneficiaries taxed at 30%: Distributions to companies already taxed at the 30% corporate rate are unaffected. Small business entities taxed at the 25% corporate rate may be impacted — the legislation is expected to clarify this.
• Superannuation funds: Distributions to complying superannuation funds, which are taxed at 15%, will be subject to the minimum rate — a significant change for structures that have historically streamed income to SMSFs.
• Commencement date: The measure is proposed to apply from 1 July 2027, subject to legislation passing Parliament.

The practical effect of this measure is to reduce or eliminate the tax benefit of distributing trust income to low-income adult beneficiaries. Consider a common scenario:

A family trust earns $200,000 in business income. The trustee distributes $60,000 to an adult child who is studying and has no other income. Under current rules, that $60,000 is taxed at the child's marginal rate — effectively at a low rate after the tax-free threshold. Under the proposed rules, a minimum of 30% would apply to that distribution, significantly increasing the tax cost.

Family trusts with adult children as beneficiaries: This is the most directly impacted group. Strategies that have relied on distributing income to adult children on low marginal rates will need to be reconsidered.

Trusts distributing to SMSFs: If your trust has historically distributed income to a self-managed super fund, the 15% tax rate advantage will be eliminated under the proposed minimum rate. This may affect retirement planning strategies.

Trusts with multiple low-income adult beneficiaries: The cumulative impact across multiple beneficiaries could be substantial, particularly for larger family groups.

• Distributions to minor beneficiaries are already subject to penalty tax rates under the existing rules and are not directly affected by this announcement.
• Distributions to corporate beneficiaries at 30% are unaffected.
• The trustee's discretion over who receives distributions is not removed — but the tax outcome of exercising that discretion changes significantly.
• Unit trusts (as distinct from discretionary trusts) are not covered by this announcement, though the legislation should be reviewed carefully when released.

There is a window before the proposed commencement date of 1 July 2027. This does not mean rushing into structural changes — hasty restructuring can trigger CGT, stamp duty, and other costs that outweigh any benefit. However, it is a good time to:

1. Review your current distribution strategy — understand which beneficiaries are currently receiving distributions and at what effective tax rates.
2. Model the impact — calculate what the 30% minimum rate would mean for your trust's after-tax position in a typical year.
3. Consider your business structure — for some businesses, operating through a company rather than a trust may become more tax-efficient under the new rules.
4. Review SMSF distribution strategies — if your trust has been distributing to a super fund, discuss alternative approaches with your adviser.
5. Wait for the legislation — the announcement is a Budget measure, not yet law. The final legislation may include modifications, carve-outs, or transitional provisions. Acting on the announcement before the law is settled carries risk.

Do not make major structural changes based solely on a Budget announcement. The legislation will provide the definitive rules, and there may be important details — including transitional provisions — that affect your planning options.

What you should do now is have a conversation with your accountant or tax adviser to understand your current exposure and begin thinking through your options. Golden Mane Advisory works with business owners and families to review trust structures and develop tax-efficient strategies within the law.

This article provides general information about the 2026 Budget announcement and does not constitute personal tax or financial advice. The proposed measure is subject to legislation and may change. Contact Golden Mane Advisory to discuss how these changes may affect your specific trust structure.