Treasury has released draft legislation that would introduce a new minimum tax on family trust income from 1 July 2028. Here's what has been proposed, what it means in practical terms, and the options available to affected families and business owners.
Under the draft rules, income earned through a family trust would be subject to a minimum tax rate of 30 per cent. The tax would be paid by the trustee, with beneficiaries receiving a credit for the tax already paid. This is designed to ensure the same income is not taxed twice.
For many families, the practical impact may be limited. Where trust income is distributed to beneficiaries already paying tax at 30 per cent or more, the tax credit should largely offset the trustee's liability, resulting in a similar outcome to the current system.
The real change is expected to be felt where trust income is regularly distributed to beneficiaries on lower marginal tax rates. For example, a university student, a non-working spouse, or another low-income family member may currently receive a distribution with little tax payable. Under the proposed rules, that same income would effectively attract a minimum 30 per cent tax rate, reducing or removing the tax benefit previously available. The draft legislation also restricts the ability to distribute income to a company unless a specific election is made.
Although these changes are not scheduled to begin until 2028, some of the most valuable decisions will need to be made well before then.
The availability of elections, the timing of restructures, and the eligibility of trust entities may all depend on actions taken before the
commencement date. Waiting until the final year could significantly reduce available options.
If your business, investment portfolio or family wealth structure is held through a trust, now is the time to start understanding the potential impact. While the proposed changes are still several years away, early planning can provide greater flexibility, preserve opportunities and ensure you're well positioned for whatever legislation is ultimately enacted.
If you'd like clarity on how the draft rules may affect your family or business, we'd be happy to have a conversation.
Planning ahead can help you make informed decisions and avoid unnecessary complications as the new rules take shape. Talk to our team about what these proposed changes could mean for you.
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