The 30% Family Trust Tax: Keep It, Elect, or Restructure?

If you run a family trust, the May Budget gave you a fright and the September draft gave you a choice. From 1 July 2028 the trustee would pay a 30% minimum tax on the trust's income. Beneficiaries get a credit for it, but the credit is non-refundable, it cannot touch the Medicare levy, and a bucket company gets no credit at all.

The draft released on 3 September 2026 adds two escape hatches. Neither is free.

This is exposure draft legislation, not law. Submissions closed on 18 September 2026 and no bill has been introduced. Everything below can change.

We built an interactive decision tool that walks you through eight questions and lands you on one of five starting points, with the numbers for each. This post is the short version.

What most trust owners don't realise

The 30% is not the problem. The problem is who gets to use the credit.

Take a couple splitting $300,000 evenly with no wages. Each person's tax on $150,000 at the 2028-29 rates is $36,302. Their credit is $45,000. The extra $8,698 each is simply lost, and they still owe $3,000 each of Medicare levy the credit cannot cover. The family pays about $17,400 more than today for doing nothing.

Now give each of them $50,000 of wages from the business. Their wages use up the low brackets, the credit on the remaining trust share is used in full, and the regime costs them nothing extra. That single adjustment, a wage or trustee fee of roughly $45,000 per beneficiary, fixes most business trusts. It is much harder for an investment trust, where you would be registering for PAYG withholding just to pay yourself.

The break-even is about $229,000 of income per person. Above that, the average tax rate is already 30% and nothing is wasted.

Door one: the election

New in the September draft. A trust that exists on 1 July 2028 can, in the 2028-29 year only, nominate named beneficiaries and a fixed percentage for each. Individuals, eligible companies, trusts and exempt entities can be nominated; super funds and partnerships cannot. Income and capital shares must be identical and add to 100%. Once made, the 30% tax does not apply to that trust at all, and the Treasurer has said the election is not expected to trigger stamp duty, though advisers say that is not yet certain.

That is why people are saying the bucket company is back. A nominated company is taxed once at the company rate, the same as today.

The catch is the word "fixed". The percentages can only change if a nominated person dies (and then only in favour of their estate's beneficiaries) or two nominated people separate under a court order, financial agreement or arbitral award. A child finishing uni, a new baby, a beneficiary moving overseas: none of it counts.

And the trap: distribute even slightly differently to the nomination, in any year, and the election is revoked automatically. For that year the whole of the trust's income is taxed at 47% in the trustee's hands. On $300,000 that is $141,000 instead of $90,000. There is no de minimis, no Commissioner discretion, and no second election. The same happens if a nominated company is deregistered or changes shareholders for a non-allowed reason.

If you have distributed the same way for a decade, the election is a gift. If you sit down every June and decide, it is a loaded gun.

Door two: the trust to company rollover

Between 1 July 2027 and 30 June 2030 a discretionary trust can move its assets to a company, an individual, a partnership or a fixed trust without CGT or income tax. Cost bases carry across. So does the 15-year small business CGT clock.

The conditions bite. Every asset has to go to one recipient by the end of the window or the relief is reversed for all of them. Every owner of the recipient must have been a beneficiary and a member of the family group. No alphabet shares, no "material discretionary elements", for four years afterwards. The election and the rollover are mutually exclusive, and the election window closes a year before the rollover window, so a failed restructure cannot fall back on it.

Then there is the cost the draft is silent on: stamp duty. The rollover is federal and only relieves federal taxes. NSW, Victoria, SA, Tasmania and the ACT charge transfer duty only on land. Queensland and WA also charge it on goodwill, plant and other business assets (the NT stopped in 2023). Queensland has a small business restructure exemption (turnover up to $5m, dutiable value up to $10m). WA has none and its Treasurer has said duty is a matter for the federal government.

Two identical services businesses with $1.5m of goodwill, one in Brisbane and one in Perth, get very different bills for the same federal move. Map your duty asset by asset before you shift anything.

Door three: the structure many business owners already use

For a business owner, the draft rollover is an odd fit. It demands individuals as shareholders and no discretion. The structure accountants already reach for, a trading company owned by the family trust through an existing rollover, keeps the trust, keeps the small business CGT concessions, and lets you insert a holding company later. Duty still applies, so the same asset-by-asset costing is needed, but ask why you would use the new rollover at all.

Three things the commentary gets wrong

1. Capital gains are not excluded. The draft defines the tax base as the trust's net income with a short list of exclusions. Capital gains are not on it. The interaction with CGT has been deferred to a later tranche. Treat it as unresolved.
2. The draft landed on 3 September 2026, not mid-September, and the election can name trusts as well as people and companies.
3. More than one thing revokes the election. A deregistered bucket company or a vested nominated trust does it too, not just a wrong resolution.

What to do now

1. Pull five years of distribution resolutions. If the split never moved, the election is your friend. If it moved every year, it is not.
2. Get the deed checked for the power to fix entitlements, and have the resettlement risk of amending it assessed.
3. Cost the transfer duty in your state, asset by asset, next to the tax you would save.
4. Then wait. Nothing is law, the rollover opens in July 2027, and the election is 2028-29. Watch for the bill, ATO guidance and any state duty relief before moving a single asset.

Run your own situation through the decision tool, then bring the result to a registered tax agent, or book a free chat with Thinkwiser.

Sources: Treasury exposure draft legislation and explanatory memoranda (consultation c2026-799771, 3 September 2026); Budget 2026-27 fact sheet on the minimum tax on discretionary trusts; Treasurer's media release of 3 September 2026; Revenue NSW, State Revenue Office Victoria, Queensland Revenue Office and WA Department of Finance duty guidance; Sladen Legal and Piper Alderman commentary, September 2026.

This article is general information only, based on exposure draft legislation that is not yet law. It is not personal tax, legal or financial advice. Speak to a registered tax agent about your trust before acting.