Trusts have been a common part of Australian business, investment and family wealth structuring for many years. They are often used because they can provide flexibility, asset protection, succession planning benefits and, in some cases, tax planning opportunities.
But the 2026 Federal Budget has changed the conversation.
The key message is simple: trusts are still useful, but they should no longer be used automatically.
If you have a trust, or you are considering setting one up, now is the time to review whether the structure still makes sense for your circumstances.
What has changed?
As part of the 2026-27 Federal Budget, the Government announced a proposed 30% minimum tax on discretionary trusts from 1 July 2028. This measure is not yet law.
The proposed rules would apply at the trustee level. Non-corporate beneficiaries who are presently entitled to trust income would be able to claim a non-refundable tax credit for tax paid by the trustee on that income.
The Government has also announced a proposed three-year restructure rollover from 1 July 2027. This is intended to assist with the transfer of assets out of discretionary trusts into other structures where appropriate.
So, this is not a “panic and restructure everything” moment. But it is very much a “review your structure” moment.
Are trusts still useful?
Yes.
Trusts may still be useful for:
- asset protection (separating business risk from personal wealth);
- succession planning;
- family wealth planning;
- holding investment assets;
- estate planning, particularly through testamentary trusts;
- providing flexibility around future ownership and income distributions.
The Government has stated that the proposed minimum tax is not intended to stop the use of trusts for legitimate reasons.
That is important. Trusts are not being abolished. However, the reason for using a trust needs to be clear.
In the past, some people used trusts almost by default. Going forward, the better question is:
“Why are we using a trust, and does it still suit what we are trying to achieve?”
Will all trusts be affected?
No.
The proposed tax is aimed at discretionary trusts.
Treasury has stated that several types of trusts are expected to be exempt, including fixed trusts, widely held trusts, complying superannuation funds, special disability trusts, testamentary trusts, deceased estates and charitable trusts.
Treasury has also stated that income from discretionary testamentary trusts will be exempt where the trusts are established for genuine testamentary purposes.
This means your trust needs to be reviewed based on its actual deed, assets, beneficiaries, income type and purpose.
Should you still use a trust in a new structure?
Sometimes, yes.
But the decision needs to be more deliberate.
There are still many reasons a trust may be useful. However, if one of the main reasons for using a trust is simply to distribute income to lower-taxed family members, the proposed rules may reduce the benefit of that strategy.
In some cases, a company may be simpler. For example, where profits are being retained in the business for growth, a company structure may provide a cleaner outcome. In other cases, a trust may still be preferred because of asset protection, family flexibility or estate planning benefits.
The right answer depends on your circumstances.
Simple example: where a trust may still work well
A family operates a business through a company and holds passive investment assets in a family trust.
The trust is not being used just to split income each year. It is being used to protect investment assets from business risk and to provide flexibility for future estate planning.
In that case, the trust may still be valuable, even if some of the tax benefits are reduced.
Simple example: where a trust may need review
A family trust earns investment income and distributes income to adult children on lower tax rates. The children are paid the money.
This type of arrangement needs careful review as the tax position will be significantly different and may result in much higher tax being paid than if invested through other structures.
This type of arrangement is what will really be hit hard. The budget papers say that they are targeting arrangements such as this, but where the beneficiaries never received the money (and essentially the arrangement was a tax dodge). However, those arrangements were already prevented by Section 100A and so this change was not necessary to prevent those arrangements.
Simple example: section 100A in practice
Assume a trust ‘distributes’ $40,000 to an adult child because the child has a lower tax rate.
The money is not paid to the child. Instead, it is used by the parents to pay household expenses, private expenses or business debts.
Because there is no genuine family or commercial reason for this, and the real reason was to reduce tax, Section 100A would apply and the tax benefit would be cancelled.
That does not mean all family trust distributions are wrong. But it does mean distributions need to be real, properly documented and explainable.
What about corporate beneficiaries and Division 7A?
Trusts that distribute income to private companies also need review because companies will not be entitled to the offset for the tax that the trustee has paid. This would mean a corporate beneficiary would face double taxation (and rates of at least 60%).
The ATO also has various concerns over Division 7A applying to trust entitlements of private company beneficiaries where the trust and company are related, and the entitlement has not been paid to the company.
In practical terms, if your trust distributes income to a company but the money remains in the trust or is used elsewhere in the family group, that unpaid entitlement needs to be managed properly.
The High Court decision in Commissioner of Taxation v Bendel has also added complexity. Whilst the taxpayer was successful in that case, the government has announced an intention to legislate to the position the ATO was arguing.
This is an area where you should not assume the answer is simple. Corporate beneficiaries, unpaid present entitlements, Division 7A, section 100A and the proposed minimum trust tax all need to be considered together.
Should you restructure your trust now?
Not necessarily.
The proposed 30% minimum tax is not yet law. The Government has released consultation material, but the final legislation and detailed rules are still to come. Treasury’s consultation process included issues such as exclusions, rollover relief, excess franking credits and collection mechanisms.
The better approach is to review first.
If you have a discretionary trust, you should consider:
- what the trust owns;
- who the beneficiaries are;
- how income has been distributed;
- whether any distributions remain unpaid;
- whether there are corporate beneficiaries;
- whether Division 7A applies;
- whether section 100A could be an issue;
- whether the trust still has a genuine commercial, asset protection or family purpose;
- what the tax position may look like if a 30% minimum tax applies from 1 July 2028.
You may not need to restructure. But you do need to understand your position.
Our view
Trusts are not dead. The 2026 Federal Budget has not abolished trusts.
But they are no longer a default answer and structuring needs to be more deliberate.
They remain useful where there is a genuine reason for the structure, such as asset protection, succession planning, family wealth planning or estate planning. However, structures that rely heavily on annual income splitting, unpaid distributions or corporate beneficiaries should be reviewed.
For new structures, the question should not be:
“Can we use a trust?”
The better question is:
“Why are we using a trust, and will it still be the right structure in five or ten years?”
The right next step is not immediate restructuring.
It is a proper review.
FAQ: Trusts after the 2026 Federal Budget
Are family trusts being abolished?
No. The Budget does not abolish family trusts. It proposes a 30% minimum tax on discretionary trusts from 1 July 2028.
Is the 30% trust tax law yet?
No. The Australian Taxation Office states that the measure is not yet law.
When would the new trust tax start?
The proposed start date is 1 July 2028.
Will all trusts be affected?
No. Treasury has stated that fixed trusts, widely held trusts, complying superannuation funds, special disability trusts, testamentary trusts, deceased estates and charitable trusts will be exempt.
Should I wind up my trust?
Not without advice. The final legislation is not yet settled, and restructuring can trigger tax, duty, legal and commercial consequences. The Government has announced a proposed three-year restructure rollover from 1 July 2027.
Are testamentary trusts still useful?
Yes. Treasury has stated that income from all types of discretionary testamentary trusts will be exempt from the minimum tax, provided they are established for genuine testamentary purposes.
What should trustees do now?
Trustees should review trust deeds, distribution strategies, unpaid entitlements, corporate beneficiaries, Division 7A arrangements and asset-holding structures before the proposed start date.