Proposed changes to the taxation of discretionary trusts could have significant implications for business owners and family groups.
Treasury has released exposure draft legislation proposing a minimum tax rate of 30% for certain distributions from discretionary trusts. Consultation is currently open until 18 September 2026, with the proposed changes expected to apply from 1 July 2028 if enacted in their current form.
While the legislation is still subject to consultation and may change, business owners using discretionary trusts should start considering what the proposed framework could mean for their existing structures.
Existing Trusts May Be Affected
One of the important considerations is that the proposed measures are not limited to newly established trusts.
Under the exposure draft, existing discretionary trusts could also fall within the new rules from 1 July 2028. This means the proposed changes are relevant to businesses and families that have been using their trust structures for many years, not just those considering establishing a new trust.
For trustees and advisers, this makes it worthwhile to review existing arrangements well before the proposed commencement date.
What Could Happen to Bucket Company Arrangements?
The changes may also prompt business owners to reconsider how they use corporate beneficiaries, commonly referred to as bucket companies.
A bucket company can currently be used as part of a broader tax planning strategy, particularly where a trust distributes income to a company rather than directly to individual beneficiaries.
However, the proposed rules could change the tax consequences of these arrangements. In particular, the proposed trustee-level tax treatment may not provide the same tax benefits or credits that businesses have traditionally considered when using corporate beneficiaries.
For some businesses, this could result in a materially different overall tax position and may require a fresh assessment of whether the existing structure continues to achieve its intended purpose.
An Election May Provide Another Path
The exposure draft also contemplates an election that could allow certain trusts to adopt fixed distribution arrangements to nominated beneficiaries.
For trusts that meet the relevant requirements, this may provide a way to remain outside the proposed minimum tax regime.
However, this should not be viewed as a universal solution. Eligibility, timing and the specific circumstances of each trust will need to be carefully considered before any decision is made.
What Should Business Owners Do Now?
The proposed legislation is not yet final, so there is no need to make immediate structural changes based solely on the exposure draft.
However, waiting until the legislation is finalised may leave limited time to properly assess the available options.
If you operate a business through a discretionary trust, it may be worthwhile to:
- Review how your trust currently distributes income.
- Consider whether a corporate beneficiary is being used and how the proposed changes could affect it.
- Identify any family members or other beneficiaries who may be relevant to future distribution strategies.
- Understand whether your trust could potentially benefit from any proposed elections or transitional arrangements.
- Discuss the potential implications with your accountant or tax adviser before making structural changes.
Looking Beyond the Tax Rate
The proposed 30% minimum rate is only one part of the discussion.
The treatment of franking credits, concessions, elections, transitional arrangements and other technical aspects could ultimately influence how different trust structures are affected.
Until the legislation is finalised, it is difficult to determine the precise outcome for every trust. What is becoming increasingly important, however, is understanding how the proposed framework could interact with the way your business or family group currently operates.
Is Your Trust Structure Still Fit for Purpose?
Discretionary trusts are not necessarily becoming obsolete. However, the proposed changes could mean that some structures produce different outcomes than they do under the current rules.
For business owners, particularly those using corporate beneficiaries, this is an opportunity to step back and ask a broader question:
Does your current trust structure still make sense for your business and family under the proposed rules?
The answer may be different for every business.
With the proposed changes still subject to consultation, now is a good time to understand your position, consider the potential alternatives and be prepared to make informed decisions once the final legislation is known.
Supervision Group can help you understand how proposed tax changes may affect your business structure and what options may be worth considering.
Disclaimer: This article discusses exposure draft legislation and proposals that may change before becoming law. It is provided for general information purposes only and does not constitute tax, legal or financial advice. We recommend obtaining professional advice based on your individual circumstances.
