Discretionary trusts have long been a cornerstone of wealth planning. Proposed tax changes may require a rethink, but not necessarily a rebuild.
If your family uses a discretionary trust and a bucket company, the post-Budget headlines have been difficult to ignore: "30% minimum tax", "double taxation", and warnings of effective rates above the top marginal rate. For families that hold investments through a discretionary trust and distribute surplus income to a corporate beneficiary, the natural question is whether a structure built over many years is about to become a liability.
The answer is: not necessarily. The position is more nuanced than the headlines suggest. For many families, the starting point should not be to dismantle the trust, but to understand what assets are affected, and what options may be available once the legislation is clearer.
Before turning to possible responses, it is worth remembering why existing discretionary trust structures were established. They may provide asset protection, support succession planning and allow the trustee to respond to changing family circumstances. Tax efficiency may be one benefit, but it is rarely the only objective. Any review should therefore test whether a tax saving justifies giving up flexibility, control or protection that remains valuable.
What has been announced?
On 12 May 2026, the Government announced that, from 1 July 2028, discretionary trusts would be subject to a 30% minimum tax on taxable income, assessed at the trustee level. That is a significant shift from the current flow-through model, where beneficiaries are generally assessed on trust income at their own rates.
Importantly, this remains draft legislation at this stage, and key design features – including the treatment of franking credits, loss beneficiaries, and the announced rollover relief – are still to be settled through consultation. The proposal is clear enough to justify planning, but not rushing into transactions.
Where the current structure gets difficult
The traditional arrangement is familiar. A trust earns income, distributes it among family members where appropriate, and may distribute surplus income to a corporate beneficiary taxed at 30%. That company then retains profits for reinvestment or pays fully franked dividends later.
The proposed rules challenge that deferral. If the trustee must pay a 30% minimum tax before income is distributed, the outcome for a corporate beneficiary may be poor if the company does not receive credit for tax already paid by the trustee. The same income could be taxed at the trust level and again at the company level. Similar concerns arise where income is distributed to an entity with losses: the minimum tax may be paid before the losses can do any useful work.
Franking credits may soften the position in some cases, but that depends on the final design. A franked dividend received by a trust may interact differently with the minimum tax from ordinary trust income or capital gains. Until the legislation explains how credits are applied, refunded or wasted, modelling should be treated as indicative only.
In many cases, the issue is not the existence of the trust or the company, but how income flows between them. That distinction is important because it opens the door to a considered review, rather than a blanket conclusion that all trusts should be wound up.
Restructuring options to test
One option to test is a carefully structured reversal of the traditional income pathway. Instead of the trust earning income and distributing surplus to a corporate beneficiary, selected income-producing assets may be held in a company, with the trust retained as shareholder or succession vehicle. The company becomes the first taxing point; profits may be retained for reinvestment or, when appropriate, returned through franked dividends.
This is different from a full unwind. The family group may preserve a role for the trust in ownership, control and succession while changing which entity earns the income. Depending on the final treatment of trustee tax and franking credits, this may reduce the risk of the same income being taxed at both trust and company level. However, the result will depend on the final legislation, the assets involved, the company’s capacity to retain or distribute profits and the family’s longer-term objectives.
That approach will not suit every asset or family group. It may warrant modelling where profits are intended to be reinvested. It may be less attractive for assets with large unrealised gains, assets subject to transfer duty, assets expected to qualify for concessions unavailable to companies, or assets for which discretionary ownership remains important. Existing loans, unpaid present entitlements, Division 7A arrangements and financing terms also need to be identified before any transfer is considered.
A range of other responses may be available. These include retaining the current structure for some assets, directing future investments to a different entity, using personal ownership where simplicity is more important than protection, considering a fixed trust where the deed and control arrangements support it, or progressively reducing reliance on the bucket company. The appropriate combination may differ across listed investments, property, private business interests and cash reserves.
For existing bucket companies, the review should extend beyond future distributions. Families may need to review retained earnings, prior-year trust entitlements, shareholder or beneficiary loans, the source and use of company cash, and how profits will ultimately be extracted. A structure that appears efficient while profits remain in the company may produce a different outcome when funds are required personally or when the family group is wound up.
Timing is another practical issue. Transferring existing assets may crystallise capital gains, incur duty or require lender consent, whereas directing new savings and reinvested income to a different vehicle may allow the structure to change gradually. Families should compare restructuring costs with expected future tax savings.
Governance and documentation also matter. Trust deeds, company constitutions, shareholder arrangements, succession documents and investment mandates should be checked together so that a tax-driven change does not produce inconsistent control or estate outcomes. Where different family members have different economic interests, the commercial effect of moving assets or changing distribution patterns should be made explicit before implementation.
The announced three-year rollover relief window from 1 July 2027 may be important, but it is not a green light for every transfer. Its scope is unsettled, and stamp duty remains a separate state-based issue, particularly for property. The work now is to have the options mapped so decisions can be made quickly once the rules are confirmed.
Questions to work through
Rather than selecting a replacement structure now, families can use the period before 1 July 2028 to assemble the information needed to compare the available paths.
- Which assets produce regular income, and which are mainly capital growth assets?
- Which assets carry large unrealised gains?
- Would stamp duty arise on a transfer?
- Which beneficiaries are expected to receive income over time?
- What asset protection or succession objectives must be preserved?
- Are there loans, unpaid present entitlements or Division 7A issues that already need attention?
- How long is each asset expected to be held, and how will sale proceeds or retained profits ultimately be used?
- Could future investments be redirected without transferring existing assets?
- What is the eventual exit strategy for retained company profits and existing trust entitlements?
The answers may point in different directions for different assets. Listed shares, investment property, private business interests and cash reserves do not need to be treated the same way. Nor do all families have the same tolerance for tax cost, complexity, control and flexibility. A good review should leave room for the final legislation and should avoid locking in an outcome before the rules are fully known.
The downsides still matter
Each option carries trade-offs. Moving assets may crystallise capital gains tax or duty and create transaction costs. A company may not access the same capital gains tax concessions as individuals or trusts, and extracting retained profits can create a later tax cost. Personal ownership may be simpler but can reduce asset protection. A fixed trust may improve certainty but reduce discretion. Retaining the current structure may avoid immediate costs but leave more income exposed to the proposed minimum tax.
The comparison therefore needs to cover more than the first year’s tax result. It should include implementation costs, tax on eventual extraction or sale, administrative burden, control, asset protection, succession flexibility and the consequences if family circumstances change. The most suitable response may be a staged or mixed approach rather than a single replacement structure.
The bottom line
The proposed trust changes are real and may require action for many families with discretionary trusts and corporate beneficiaries. However, the response should be measured. The minimum tax is not due to commence until 1 July 2028, and the rollover window is not expected to open until 1 July 2027. There is time to review structures properly, model the likely outcomes, and preserve the benefits that made the trust valuable in the first place.
For now, a practical approach is to identify affected structures, map the assets and liabilities, review existing bucket company balances and model the available options on consistent assumptions. That work can distinguish decisions that may be made gradually from those that must wait for draft legislation and the detail of any rollover relief. In many cases, the objective will be adjustment rather than abandonment.
Anne-Marie Tassoni is a Partner at Cameron Harrison, specialising in strategic financial advice and wealth management for high-net-worth individuals and families. The information provided is of a general nature only and does not take into account your individual objectives, financial situation, needs or circumstances. While every effort has been made to ensure the accuracy of the information at the time of publication, its accuracy, reliability and completeness should not be relied upon.