The trust rules just changed again. This time it’s good news. With a deadline.
Cast your mind back to the May Budget. The one that made family trusts a lot less useful for a lot of families.
A 30% minimum tax on trust income. No credit for that tax when the money flowed to a company. The whole point of a family trust, splitting income to whoever pays the least tax, was taken off the table.
Well, the draft law released on 3 September has put one door back in. For the right families, it could be worth hundreds of thousands of dollars over time.
The catch is the door only stays open until 1 July 2028. That’s less than two years away, and setting this up properly takes time.
In this article:
- What the Budget did to family trusts
- The door that’s opened
- The maths
- The catch: once the slab’s poured, it’s set
- The clock is ticking
- Who this matters most for
- Who can probably sit this one out
- Don’t leave it to the last minute
- Frequently asked questions
What the Budget did to family trusts
For decades, a family trust (a discretionary trust) has worked like this. Each year, the trustee decides who gets the income. Mum on a lower income gets a slice. Uni-age kids get a slice. A company (often called a bucket company) takes the rest at the company tax rate. Everyone pays a bit less, and the family keeps more.
The May Budget took a sledgehammer to that. From 1 July 2028, the trustee pays a minimum 30% tax on the trust’s income before it goes anywhere.
- Beneficiaries who are people get a credit for that 30%, so a top-rate earner just tops up the difference. Anyone on a lower rate doesn’t get the excess back.
- Companies get no credit at all. Send income to your bucket company and it’s taxed once in the trust and again in the company.
So splitting income stopped working, and the bucket company became a tax trap. A lot of families started asking whether their trust was worth keeping.
The door that’s opened
The draft law gives existing trusts a way out. The trustee can make a one-off election that locks in how the trust’s income and capital get split. Fixed percentages, to named beneficiaries, every year from here on.
Make that election and the 30% minimum tax switches off for that trust.
Here’s the bit that matters. One of those named beneficiaries can be a company. That means the bucket company is back in play, paying tax at the flat company rate with no double hit.
In plain English: you give up the flexibility to change the split each year. In return, you get the tax advantages back.
The maths
Say your trust earns $1 million a year, and it all goes to family members on the top tax rate. That’s about $470,000 in tax (47%, including the Medicare levy).
Now say the split sends it to a bucket company instead. The tax is $300,000 (30%). The rest stays in the company, invested and working for you, until you draw it out.
Same income. Same trust. About $170,000 a year less tax while that money is working.
Run that for 10 or 20 years, with the extra money compounding inside the company, and you can see why this is worth a proper look.
One thing to be clear on. When you eventually take money out of the company as a dividend, you pay the difference between the company rate and your own rate at the time. So this isn’t tax you never pay. It’s tax you pay later, often at a lower rate once you’ve stepped back from work, while the money does the heavy lifting in between.
The catch: once the slab’s poured, it’s set
Once you make the election, the percentages are locked.
Think of it like pouring the slab on a new house. You can move the walls around on paper as much as you like. Once the concrete sets, you’re not moving anything.
The split can only change in two situations:
- The death of a named beneficiary.
- A relationship breakdown between named beneficiaries.
That’s it. A new grandchild, a child who moves overseas, a falling out, a change of heart. None of those let you change the numbers.
And if the trustee pays out any other way, the election is gone. That year, the whole of the trust’s income is taxed at 47%, and the trust falls back under the 30% minimum tax from then on.
So the design has to be spot on before the concrete goes in. Who’s named. What percentage each one gets. Which company, and how that company is owned. There’s also a rule that each person gets the same percentage of income and capital, so you can’t give someone a big slice of the income and a small slice of the assets.
- Named beneficiaries, set by 1 July 2028.
- A fixed percentage for each one.
- The same percentage of income and capital.
- A bucket company can be one of them.
- The death of a named beneficiary.
- A relationship breakdown between named beneficiaries.
- Nothing else. Not a new grandchild, not a falling out.
- Tax on all of the trust’s income that year.
- Then back under the 30% minimum tax, for good.
The clock is ticking
The election is only for trusts that exist on 1 July 2028. Your trust, and every beneficiary you want to name (including any bucket company), needs to exist and be able to benefit under the trust deed on that date.
It’s a one-shot deal. Miss the date and you can’t get it back.
That might sound like plenty of time. It isn’t. Getting this right means your adviser, your accountant and often a lawyer all working through:
- Whether the election even suits your family.
- Who to name, and the right split.
- Whether your trust deed needs updating.
- Setting up a company with the right ownership, if you don’t already have one.
The government has also flagged a temporary rollover from 1 July 2027 that lets trusts move assets into other structures without a tax hit. For some families, that will be the better path. It’s another reason to start the conversation early.
It’s a one-shot deal. Miss 1 July 2028 and the option is gone for good. A structure set up in a hurry is usually a structure set up wrong.
Who this matters most for
This isn’t the right move for everyone. It’s worth a serious look if you’re:
- Building wealth for the long haul. If your trust earns good income and you’re planning to grow serious wealth over the next couple of decades, keeping more of it working inside a bucket company could be a generational advantage.
- A business owner. A trust plus a bucket company can keep the tax on profits you leave in the business structure at 30%, instead of up to 47%. The same thinking can apply when you eventually sell, though the small business CGT concessions may do even better. That’s one to work through with your accountant.
Who can probably sit this one out
- Trusts earning modest income. If most of the income already goes to family members on 30% or more, the minimum tax may not cost you much.
- Families whose situation is still moving. Young kids, blended families, a business that might change hands. The less certain the next 20 years look, the more that locked-in split can pinch.
- Anyone who needs flexibility more than a tax saving. Sometimes being able to change the split is worth more than the tax you’d save.
Don’t leave it to the last minute
The legislation is still a draft, and the detail may change. Consultation closed on 18 September, so we’re watching for the final version.
The opportunity is real though, and a structure set up in a hurry is usually a structure set up wrong. With a slab, you get one pour.
Let’s get the plan right while there’s still time to do it properly.
Ready to talk it through
If you’ve got a family trust, or you’re wondering whether you should, book a free 15-minute introductory phone call with our Geelong team. We’ll look at whether this makes sense for you and bring your accountant into the conversation.
03 5221 3585 | [email protected] | apexadvice.com.au
A Presto (Speak Soon)
John Manserra
Certified Financial Planner®, Director
Apex Advice – Geelong Financial Advisers and Geelong Mortgage Brokers for business owners and professionals who want to make work a choice before you’re 67.
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Frequently asked questions
Announced in the May 2026 Budget, it’s a minimum 30% tax paid by the trustee of a discretionary trust on the trust’s income, starting 1 July 2028. Individual beneficiaries get a credit for the tax paid, but company beneficiaries don’t. It’s designed to stop income being split to family members on lower tax rates.
From 1 July 2028. It isn’t law yet. Treasury released draft legislation on 3 September 2026 and consultation closed on 18 September 2026, so the detail could still change before it’s passed.
Under the draft law, an existing trust can make a one-off election to fix how its income and capital are split. The trustee names the beneficiaries and gives each a fixed percentage. Once that election is made, the trust is treated more like a fixed trust and the 30% minimum tax doesn’t apply.
Yes. Under the election, a company can be one of the named beneficiaries, as long as it meets the rules (broadly, a company with no material discretionary elements in who owns it). That lets income flow to the company at the company tax rate without being taxed twice.
Only in two situations: the death of a named beneficiary, or a relationship breakdown between named beneficiaries. Any other change, or any payment outside the fixed split, cancels the election.
The election is revoked. In that year, the trustee is taxed on all of the trust’s income at the top marginal rate plus the Medicare levy, about 47%. From then on, the trust falls back under the 30% minimum tax.
The trust must exist on 1 July 2028, and the beneficiaries you name (including any company) must be able to benefit under the trust deed on that date. The election is made for the 2028-29 income year and can’t be made later. Miss it and the option is gone for good.
No. It suits families with a trust earning solid income, a long-term wealth plan and a fairly settled family picture. For others, keeping the flexibility, using the temporary restructure rollover, or winding the trust up may be the better call. Get advice from your adviser and accountant before you decide.
Important:
This is not tax advice. The information contained in this article has been provided as general advice only. The contents have been prepared without taking account of your personal objectives, financial situation or needs. You should speak to your financial adviser and accountant before acting on it.
Current at 21 September 2026.