If your business operates through a discretionary trust — or you use a trust structure as part of a joint venture, shareholders agreement, or asset protection strategy — the federal government’s proposed 30% minimum tax on discretionary trusts will change the commercial calculus fundamentally.
Announced in the 2026 Federal Budget on 12 May 2026 and confirmed to commence on 1 July 2028, this is the most significant structural change to how discretionary trusts are taxed in decades. For Queensland business owners, directors, and shareholders, the implications extend well beyond tax — into business structure, shareholder disputes, joint venture arrangements, and succession planning.
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- From 1 July 2028, trustees of discretionary trusts must pay a minimum 30% tax on the trust’s taxable income before distributions.
- Corporate beneficiaries will not receive a tax credit — meaning the double-tax risk is real for trust structures that distribute to company beneficiaries.
- Joint ventures and shareholder arrangements using trust structures will need review — existing agreements may not account for this tax shift.
- Rollover relief for restructuring out of trusts will be available for eligible small businesses.
- New discretionary testamentary trusts established after 12 May 2026 must have only individual beneficiaries to retain their tax-exempt status.
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What the 2026 Federal Budget Actually Proposes
Under the current tax system, discretionary trusts do not pay tax at the trust level. Instead, income flows through to beneficiaries, who pay tax at their marginal rates. This flow-through treatment has made discretionary trusts a popular vehicle for business ownership, investment, asset protection, and family wealth structuring.
From 1 July 2028, that changes. The government will require trustees to pay a minimum tax rate of 30% on the trust’s taxable income before making any distributions. The stated rationale: narrowing the gap between tax paid on trust income and tax paid by wage earners on comparable amounts.
Key structural details from the budget announcement:
- Who pays: The trustee pays the 30% minimum at trust level.
- Credits for individual beneficiaries: Individual beneficiaries will receive non-refundable credits for the tax paid by the trustee. They still declare trust income in their tax returns.
- No credit for corporate beneficiaries: Companies receiving distributions will not receive a credit for the trustee’s tax. This creates a potential double-taxation problem for business structures that include a corporate beneficiary (a common arrangement for asset protection).
- Commencement: 1 July 2028. Legislation has not yet been finalised as at July 2026.
Which Trusts Are Exempt?
Not all trusts are caught. The following categories are exempt from the 30% minimum:
- Fixed and widely held trusts
- Complying superannuation funds
- Charities and special disability trusts
- Income of vulnerable minors
- Discretionary testamentary trusts in existence before 7:30pm on 12 May 2026, provided the trust only has individual beneficiaries
- Discretionary testamentary trusts established after 12 May 2026, but only if: (a) established for genuine testamentary purposes, and (b) the only beneficiaries are individuals (not companies)
The critical takeaway: many existing testamentary trusts in wills include companies as beneficiaries. If those wills come into effect after the new rules commence, and the trust does not satisfy the exemption, the 30% minimum will apply.
The Commercial Law Implications: Four Areas That Need Immediate Attention
1. Shareholder and Joint Venture Agreements Using Trust Structures
Many Queensland business partnerships and joint ventures are structured with each party holding their interest through a discretionary trust. The trust then holds shares in the operating company or the JV vehicle.
If the 30% minimum tax changes the after-tax return of the trust structure, it can disrupt the economic assumptions underlying the agreement. Share valuation methodologies, dividend expectations, and profit-sharing arrangements written before this change was announced may now produce a materially different outcome.
Any shareholder agreement that uses a trust vehicle to hold shares, has valuation provisions that reference after-tax earnings or NPAT, includes dividend or distribution obligations at specified rates, or has drag-along or tag-along mechanics tied to market value, should be reviewed before 1 July 2028 to assess whether the tax change materially affects the parties’ rights and obligations. Speak to our shareholder disputes team if your agreement is affected.
2. Business Sale and Business Valuation Disputes
Businesses operating through discretionary trusts are frequently bought and sold with valuations that rely on the current flow-through tax treatment. A buyer acquiring a trust-structured business at a multiple of earnings-before-tax will be paying a price that assumes those earnings are taxed at the beneficiary level — not at the 30% minimum at trust level.
If completion of a sale is delayed past 1 July 2028, or if the sale agreement was struck before the budget announcement without appropriate tax adjustment clauses, a dispute about true value is foreseeable. Representations about the tax treatment of trust income — particularly in vendor statements, information memoranda, and warranties — will need to be precise.
3. Director Duties and the Obligation to Plan
Where a trustee company holds assets in a discretionary trust, the directors of the trustee company have statutory duties under ss 180–184 of the Corporations Act 2001 (Cth) — including the duty of care and diligence under s 180.
Knowing that a structural change is coming in 2028 and failing to model its impact on the trust’s beneficiaries is a governance risk. Directors of trustee companies should now be getting tax advice on the impact, assessing whether rollover relief to restructure out of the trust is available, and documenting the analysis so the business judgment rule (s 180(2)) can be relied upon if the decision is later challenged. Our director disputes lawyers can advise on the governance framework.
4. The Double-Tax Trap: Trust Structures With Corporate Beneficiaries
Many Queensland businesses use a discretionary trust with a corporate beneficiary (a company owned by the principals) as an asset protection and income-splitting mechanism. Income is streamed to the corporate beneficiary and taxed at the company rate (25–30%).
Under the proposed rules, the trustee pays 30% at trust level — and the corporate beneficiary receives no credit for that tax. This creates a double-taxation outcome that effectively destroys the commercial rationale for the structure. The cost of doing nothing is significant, and the window to restructure before 2028 is finite.
Rollover Relief: What We Know So Far
The government has indicated that expanded rollover relief will be available to assist businesses that want to restructure out of discretionary trusts into alternative structures (such as a direct company or unit trust structure). Details of the rollover conditions — including stamp duty implications, CGT events, and entity eligibility — have not yet been legislated as at July 2026.
What is known: stamp duty on the transfer of assets out of a trust and into a company differs significantly between states. In Queensland, the Duties Act 2001 (Qld) imposes transfer duty on dutiable property. Any restructuring out of a trust will need to address both the federal tax rollover conditions and Queensland duties implications before execution. Our commercial litigation team works closely with tax advisers to ensure restructuring decisions are commercially and legally sound.
Six Steps Queensland Business Owners Should Take Now
The legislation is not yet finalised. But the direction of travel is clear, and the 2028 commencement date gives businesses a window to act. Here is a practical six-step framework:
- Map your trust structures. Identify every discretionary trust in your structure: operating trusts, holding trusts, investment trusts, testamentary trusts-in-progress. Understand who the beneficiaries are and whether any are corporate beneficiaries.
- Model the tax impact. Ask your accountant to model the after-tax cost of the 30% minimum on your trust’s typical annual taxable income. Compare the current structure with alternative options (company, unit trust, hybrid).
- Review shareholder and JV agreements. Check any agreement where a trust is a party or holds shares. Look for valuation clauses, profit-sharing mechanisms, and tax representation clauses that may need updating.
- Assess rollover relief eligibility. Once the legislation is finalised, assess whether your structure qualifies for the small business restructuring rollover and what conditions apply.
- Update testamentary trust provisions in your will. If your will includes a discretionary testamentary trust with corporate beneficiaries, review it. Testamentary trusts coming into existence after 12 May 2026 must have only individual beneficiaries to retain the exempt status.
- Document the decision. Whatever you decide — restructure, retain, or wait — document the analysis and the commercial rationale. Directors of trustee companies need this for the business judgment rule defence.
Frequently Asked Questions
Does the 30% discretionary trust tax apply from 1 July 2026?
No. The proposed commencement date is 1 July 2028. As at July 2026, the legislation has not yet been finalised. Planning should begin now because restructuring out of a trust before 2028 requires time and careful sequencing to avoid triggering CGT events or duty liabilities.
Will my existing discretionary trust be affected if it has a corporate beneficiary?
Yes, potentially. Under the proposed rules, corporate beneficiaries will not receive a credit for the 30% trustee-level tax. This creates a double-taxation risk. The commercial rationale for using a corporate beneficiary to stream income at company tax rates will be significantly undermined unless the structure is changed before 1 July 2028.
Does the trust tax affect shareholder agreements where parties hold shares through trusts?
It can. Shareholder agreements relying on after-tax earnings for valuation, profit distribution, or buy-out pricing may produce different outcomes if the trust’s effective tax rate increases. Agreements should be reviewed to assess whether existing clauses adequately address the tax change, particularly valuation mechanisms tied to NPAT or earnings-based multiples.
Can I restructure my business out of a discretionary trust without triggering CGT?
Rollover relief for restructuring out of discretionary trusts is proposed but not yet legislated. Current small business CGT concessions and Subdiv 328-G rollovers may apply in some circumstances. Queensland stamp duty implications under the Duties Act 2001 (Qld) must also be assessed. Professional tax advice is essential before executing any restructure.
What legal help do I need to review my trust structure?
You need a tax adviser (accountant or tax lawyer) to model the impact and assess restructuring options, and a commercial lawyer to review any shareholder agreements, JV arrangements, or trust deeds affected by the change. If a dispute arises about the structure or its terms, a commercial litigation lawyer experienced in trust and shareholder disputes can assist.
Disclaimer: This article contains general information only and is not legal or tax advice. The proposed trust tax changes are not yet legislated and details may change before commencement. You should obtain professional advice specific to your circumstances before making any decisions about your trust structure or business arrangements.
If you are reviewing your trust-based business structure, or if a dispute has arisen about how a trust operates in a shareholder or joint venture context, speak to the commercial litigation team at Boss Lawyers. Call 1300 267 711 or contact us online.
