Billed as Estate Planning, the 2026 Trust Tax Changes Are a Business Problem

Key Takeaways

• The 2026-27 Federal Budget proposes a 30% minimum tax on the taxable income of discretionary trusts from 1 July 2028, payable by the trustee. It is not yet law.
• From 1 July 2027, the 50% capital gains tax discount would be replaced by cost base indexation with a 30% minimum tax on the gain, and pre-1985 assets would be drawn into the net for gains accruing after that date.
• Discretionary trusts are a mainstream business ownership structure, not just an estate planning tool, so the measures reach trading businesses, family enterprises, farms and investors.
• Many owners will face a choice between restructuring out of a discretionary trust and absorbing the 30% as the price of keeping its flexibility and asset protection. A three-year rollover relief window runs from 1 July 2027 to 30 June 2030.
• Whatever you decide, find your trust deed now and check its vesting date and whether it is genuinely discretionary, and pull together the acquisition dates and original cost base for the trust's assets.

1. 1.In Brief
2. 2.What the Changes Are
3. 3.Why It Is a Business Issue, Not Just Estate Planning
4. 4.Will It Rock the Boat
5. 5.The Real Decision
6. 6.What to Do Now

The 2026-27 Budget's overhaul of trust and capital gains tax has been written up as an estate planning story, all wills and inheritances. That undersells it. Discretionary trusts are how a large share of Australian business is owned and run, so the same measures land on trading businesses, family enterprises and investors. Three questions matter. What is it? Will it rock the boat? What would it actually do? In short, the measures are real and far-reaching but not yet law. They would change the economics of owning a business through a trust. There is also a narrow window to restructure before they take effect.

In Brief

• The 2026-27 Federal Budget, announced on 12 May 2026, proposes a 30% minimum tax on the taxable income of discretionary trusts from 1 July 2028, payable by the trustee. It is not yet law.
• From 1 July 2027, the 50% capital gains tax discount would be replaced by cost base indexation with a 30% minimum tax on the gain, for individuals, trusts and partnerships. Pre-1985 assets would be drawn into the net for gains accruing after that date.
• Discretionary trusts are a mainstream business ownership structure, not just an estate planning tool, so the measures reach trading businesses, family enterprises, farms and investors.
• Many business owners will face a choice between restructuring out of a discretionary trust and absorbing the 30% as the price of keeping its flexibility and asset protection.
• A three-year rollover relief window, from 1 July 2027 to 30 June 2030, is proposed to help small businesses restructure. Much of the detail remains in consultation.

What the Changes Are

The 2026-27 Federal Budget, handed down on 12 May 2026, packages several measures together. From 1 July 2028, trustees of discretionary trusts would pay a minimum tax of 30% on the trust's taxable income. Beneficiaries other than companies would receive a non-refundable credit for that tax. From 1 July 2027, the 50% capital gains tax discount would be replaced by cost base indexation, with a 30% minimum tax on the real gain, for individuals, trusts and partnerships. Assets acquired before capital gains tax began in 1985 would be drawn into the net for gains accruing after 1 July 2027. Negative gearing on established residential property would be confined to new builds. Fixed trusts, widely held trusts, fixed testamentary trusts, special disability trusts and complying superannuation funds sit outside the trust measure. None of this is law yet. It is a Budget announcement, open for consultation, with the detail and the start dates still to be legislated.

Why It Is a Business Issue, Not Just Estate Planning

The coverage has framed this as an estate planning problem, for good reason, because discretionary trusts sit at the centre of how families pass on wealth and protect vulnerable beneficiaries. That is only half the picture. The discretionary trust is also one of the most common ways Australians own and run a business. Trading enterprises, professional practices, farms, property portfolios and investment holdings are routinely held through a family discretionary trust, usually with a corporate trustee. The reason is rarely tax alone. The structure offers asset protection, flexibility in who receives income each year and a clean path for succession. A 30% floor on trust income and the loss of the capital gains discount on assets held in the trust therefore reach well beyond the family will. They change the after-tax economics of owning a business through the structure that a large share of private businesses actually use.

Will It Rock the Boat

For a business owner whose trust splits income among family members on lower marginal rates, the 30% minimum is a direct cost. The credit passed to beneficiaries is non-refundable, so a beneficiary with little or no other income cannot recover the difference. The capital gains changes bite hardest on a sale or a succession event. Replacing the 50% discount with indexation and a 30% floor will, for many assets, raise the tax on a business or property disposal. The indexation method will not always keep pace with the discount it replaces. The capture of pre-1985 assets is significant for long-established family businesses and primary producers, some of whom hold land and goodwill acquired before capital gains tax existed.

Set against that, three things temper the alarm. The measures are not law and remain in consultation, so the detail can shift. The start dates are 1 July 2027 and 1 July 2028, which leaves time to plan. The Government has also proposed a three-year rollover relief window, from 1 July 2027 to 30 June 2030, to let small businesses move out of a discretionary trust into a company or a fixed trust without triggering the usual tax on a restructure. So it would rock the boat for trust-owned businesses, but on a known timetable and with a planned exit ramp.

The Real Decision

For most trust-owned businesses the real question is not whether tax rises but whether to restructure. That is where it gets difficult. Every option carries a cost and some of them are one-way doors. Moving out of a discretionary trust can lift the 30% floor while surrendering the very things the trust was built to do, namely the asset protection, the flexibility over income and the room to hand the business on in stages. The exclusions that look like an easy escape, the fixed trust or the company, each give up something the structure was chosen to provide. A conversion made now can lock in today's arrangements for decades. Whether that trade is worth making turns on why the trust exists in the first place, a question the Budget papers ignore and one most owners have never had to answer with precision. Get it right and the saving is real. Get it wrong and it is expensive, sometimes permanently.

What to Do Now

None of this is law yet. Nothing needs to change today. The mistake would be to treat that as a reason to ignore it. The measures begin to take effect from 1 July 2027. The relief window for restructuring closes on 30 June 2030. A trading business cannot be restructured safely in a hurry. The work between now and then is to understand where your structure stands and what your real options are, before the runway shortens and while the rules are still being settled.

One step is worth taking now whatever you decide, because it costs nothing and helps either way. Find your trust deed and check two things on it. First, its vesting date, the day the trust must end and pay out. Second, whether the trust is genuinely discretionary rather than fixed or hybrid, because the label a family uses is not always its legal character. While you are there, pull together the acquisition dates and the original cost base for the assets the trust holds. Indexation and the return of pre-1985 assets make those records matter again. They are the first thing to go missing on a structure that has run for decades.

This is general information, not advice on your situation. The measures may change before they become law. What will not change is that every business owned through a discretionary trust now has reason to have its structure looked at by someone who does this work. The cost of asking is low. The cost of finding out too late, after the relief window has closed, is not.

If your business is held in a discretionary trust and you would like to review where these changes leave you while the options are still open, please get in touch or call (07) 4270 8880.

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Astris Law is not a registered tax agent and does not provide tax advice. References to tax law in this article describe the legal framework only. For tax advice specific to your circumstances, consult your registered tax agent or accountant.