Proposed 30% Tax on Family Trusts: What the 2026 Changes Mean for Australian Families and Business Owners

The proposed changes to Australia’s family trust rules could represent one of the most significant shifts in trust taxation in decades.

Under the 2026 Federal Budget proposal, from 1 July 2028, discretionary trusts would be subject to a minimum tax rate of 30% on taxable income.

Currently, a family trust generally does not pay tax itself when income is fully distributed to beneficiaries. Instead, beneficiaries include their share of trust income in their own tax returns and pay tax at their applicable marginal rates.

The proposed rules introduce a trustee-level tax mechanism designed to ensure at least 30% tax is collected on trust income. For individual beneficiaries, this tax generally operates through a non-refundable tax offset rather than creating an additional layer of tax.

However, the impact becomes significantly more complex when family trusts distribute income to bucket companies.

Why the Original 30% Trust Tax Proposal Created Concern

Under the original proposal, corporate beneficiaries would not receive a tax offset for the 30% minimum tax already paid by the trustee.

This creates a potential double taxation issue:

• The trustee pays 30% minimum tax.
• The bucket company is then taxed again on the trust distribution.

This could result in combined tax outcomes of up to 60% of the original trust income.

For many family groups that traditionally use bucket companies to retain business profits or investment income, this raised significant concerns about whether the strategy would remain effective after 1 July 2028.

How the Double Taxation Could Work

Consider a family trust earning:

$100,000 taxable income

and distributing the full amount to a corporate beneficiary (bucket company).

Under the original Budget proposal:

Tax Component	25% Corporate Rate	30% Corporate Rate
Trustee Minimum Tax (30%)	$30,000	$30,000
Company Tax Payable	$25,000	$30,000
Total Combined Tax Paid	$55,000	$60,000
Effective Tax Rate	55%	60%

For family groups using bucket companies, this potential 55%–60% effective tax outcome created significant uncertainty.

What Changed Under the September 2026 Exposure Draft?

On 3 September 2026, Treasury released exposure draft legislation introducing an important alternative pathway:

Excluded Election Trust (EET) Regime

Under the proposed EET rules, an eligible discretionary trust existing on 1 July 2028 may make a one-off election to nominate specific beneficiaries and fixed entitlement percentages.

Once the requirements are satisfied, the trust becomes an Excluded Election Trust (EET) and falls outside the 30% minimum trust tax regime.

Importantly, nominated beneficiaries can include:

• Individuals
• Companies
• Other eligible trusts

This means a bucket company may potentially be nominated as a fixed beneficiary without triggering the additional 30% trustee-level tax.

Example:

Beneficiary	Fixed Entitlement
Husband	20%
Wife	20%
Bucket Company	60%

Can the EET Regime Save the Bucket Company Strategy?

Potentially, yes.

Under the proposed EET rules, an eligible bucket company can be nominated as a beneficiary. If the trust satisfies the EET requirements, the 30% trustee minimum tax would not apply.

Instead, the company would be taxed on its fixed share of trust income under normal corporate tax rules.

Example based on $100,000 trust income:

Tax Component	Current Rules	Original Proposal	EET Election
Trustee Minimum Tax	$0	$30,000	$0
Company Tax Payable	$25,000	$25,000	$25,000
Total Immediate Tax Paid	$25,000	$55,000	$25,000
Effective Tax Rate	25%	55%	25%

However, bucket company distributions are not tax-free.

Division 7A rules, related-party loans, and future dividend taxation must still be considered.

The Trade-Off: Losing Trust Flexibility

The biggest advantage of a discretionary family trust has always been flexibility.

Trustees can decide each year how income should be distributed depending on:

• Beneficiary income levels
• Family circumstances
• Business performance
• Investment outcomes

An EET election changes this flexibility.

Once percentages are nominated, they generally apply to:

• Income entitlements
• Capital entitlements

and cannot normally be changed except in limited circumstances.

This means a nominated bucket company percentage could also affect future capital distributions, including gains from:

• Property
• Business assets
• Investments

Does the EET Apply to Existing Family Trusts?

The key date is:

1 July 2028

A discretionary trust must exist on this date to potentially access the EET election.

Trust Establishment Date	EET Eligibility
Existing family trust	Potentially eligible
New trust before 1 July 2028	Potentially eligible
New trust after 1 July 2028	Not eligible

For bucket companies, the company must also exist on 1 July 2028 and already qualify as a beneficiary under the trust deed.

Should You Restructure Your Family Trust Before 1 July 2028?

The introduction of the EET regime does not mean every family trust should automatically make an election.

Family groups generally have three possible pathways:

Option 1: Maintain the Existing Structure

Continue operating as a discretionary trust and accept the new minimum tax rules.

Option 2: Make an EET Election

Avoid the 30% minimum tax but accept fixed income and capital distribution percentages.

Option 3: Restructure

Move assets into another structure such as:

• Company structures
• Fixed trusts

Treasury has proposed a three-year rollover period from:

1 July 2027 to 30 June 2030

for eligible restructures.

However, restructuring may still involve:

• Stamp duty
• Land tax
• Refinancing costs
• Other transaction costs

What Should Family Trust Owners Do Next?

The September 2026 Exposure Draft represents a significant change from the original proposal.

The 30% minimum trust tax has not been removed. Instead, eligible trusts may have another pathway through the EET regime.

For some families, particularly those using bucket companies, the EET election may provide a valuable solution.

For others, losing discretionary flexibility may outweigh the tax benefits.

The legislation remains in draft form, meaning there is no need to rush into restructuring immediately. However, family trust owners should begin reviewing their structures well before the 1 July 2028 deadline.

Frequently Asked Questions

Is the 30% family trust tax still going ahead?

Yes. The proposed 30% minimum tax on discretionary trusts remains scheduled for 1 July 2028. The September 2026 Exposure Draft introduces the EET regime as a possible alternative for eligible trusts.

Can a bucket company still be used after 1 July 2028?

Potentially yes.

An eligible bucket company may be nominated as an EET beneficiary, allowing it to receive its fixed share of trust income without triggering the additional trustee-level minimum tax.

Can a new family trust qualify for EET?

Potentially, but timing is critical.

A trust established between now and 30 June 2028 may qualify if requirements are met. A trust established after 1 July 2028 will not generally qualify for EET.

Should I restructure my family trust before 1 July 2028?

Not necessarily.

The correct decision depends on:

• Trust assets
• Beneficiaries
• Existing distribution strategy
• Long-term objectives

Restructuring can create additional tax and legal consequences.

Need Advice About Your Family Trust Structure?

The proposed 2028 changes could significantly affect how Australian families and business owners use discretionary trusts.

Before making any decisions, it is important to understand how the proposed rules may affect your:

• Family trust
• Bucket company structure
• Investment assets
• Business operations

Speak with Camden Professionals to review your options and plan ahead.

Source & Disclaimer

This article is based on the Australian Government’s September 2026 Exposure Draft legislation and explanatory materials released for consultation on 3 September 2026.

The Exposure Draft is not yet law and may change following consultation or the legislative process.

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