Discretionary Trusts Face 2028 Tax Shake-Up: What to Do
Labor's 30% minimum trust tax remains on the table despite a partial backdown — here's what the exposure draft means for property investors and family trusts.
What Labor's 30% Minimum Trust Tax Actually Proposes
If you hold investment property through a discretionary trust — or are planning to — the federal government's proposed changes deserve close attention. The legislation is still in exposure draft form, consultation closes on 18 September 2026, and further provisions are expected in later tranches. But the direction is clear enough that serious planning should begin now.
Property Update reports that under the original budget announcement, the trustee of an affected discretionary trust would pay a minimum tax of 30 per cent on the trust's taxable income from 1 July 2028. The scale of what's at stake is significant: Treasury says Australia has about 840,000 discretionary trusts, and that families using them have, on average, faced tax rates around four percentage points lower than comparable families without trusts. The government has framed the reform as a matter of aligning trust taxation more closely with how wages are taxed.
The original proposal triggered immediate concern from family businesses, investors, and professional advisers. The core worry was that a 30 per cent trustee-level tax would undermine the flexibility that makes a discretionary trust useful — particularly the ability to vary distributions between beneficiaries depending on their individual tax positions each year. Many families feared being pushed into expensive restructures, with capital gains tax and state stamp duty costs on top.
It's also worth understanding what falls outside the proposal. Fixed trusts without material discretionary elements, widely held and managed investment trusts, complying superannuation funds, special disability trusts, and charitable trusts are excluded. Deceased estates and testamentary trusts established for genuine testamentary purposes are also intended to sit outside the minimum tax. However, a trust can hold several types of assets and earn different streams of income — an exclusion applying to one income type does not necessarily exclude the whole trust structure.
The New Election Option: Certainty in Exchange for Flexibility
Following industry pushback, the government has introduced a partial concession for existing trusts. Under the revised exposure draft, a trustee of a discretionary trust that existed on 1 July 2028 may elect to nominate beneficiaries and specify fixed percentages of income and capital for each. If the election is made and the trust follows those fixed percentages every year, the 30 per cent minimum tax would not apply. Distributions to individuals would continue to be taxed at their marginal rates.
The election must be made in the 2028-29 income year, with ATO notification due by the earlier of the trust's tax return lodgment date or the date the return is actually lodged. Trusts established after 1 July 2028 would not have access to the concession under the current draft.
For families whose intended distribution pattern is already stable — for example, a rental income stream flowing to a small number of adult family members in a consistent proportion — the election may offer a workable path. It could also preserve access to a corporate beneficiary where that company and its ownership arrangements satisfy the proposed definition.
But the trade-offs are real. Property Update notes that the election must allocate 100 per cent of both income and capital, and each beneficiary's percentage of income must match their percentage of capital. If distributions in any year don't match the nominated percentages, the election is automatically revoked. The trustee would then be assessed at the highest marginal rate plus the Medicare levy — currently a combined 47 per cent — for that year, and the trust would move into the 30 per cent minimum tax regime for future years. Once an election is revoked, it cannot be remade.
The practical challenge is that families are being asked to make decisions in 2028 that could shape how trust income and capital is distributed for decades to come. Family circumstances — careers, marriages, care needs, new children or grandchildren — rarely remain static across that kind of timeframe. The current draft offers only limited relief for changes following the death of a nominated beneficiary or the breakdown of a relationship, and does not presently allow adjustments simply because a family's financial situation has evolved.
What Property Investors Should Do Before 2028
For property investors holding assets through a discretionary trust, the most important message is: don't rush into a restructure while the legislation is still in draft form, but use this window to build a clear picture of your situation.
A thorough review should start with why your trust exists, who can benefit under the deed, where income is currently distributed, which properties or other assets it holds, and how you intend succession to work. Once you have that picture, model several scenarios rather than optimising only for the next financial year. Paying the 30 per cent minimum, making the fixed election, or restructuring into a company or fixed trust can produce very different outcomes over ten or twenty years.
For those considering a restructure, the government is proposing income tax rollover relief from 1 July 2027 to 30 June 2030, including relief from capital gains tax where the detailed conditions are met. However, rollover relief does not automatically remove state and territory stamp duty costs, land tax consequences, or finance complications — and choosing the rollover option prevents a trust from later using the election. Acting too quickly before the final legislation is settled could have lasting and costly consequences.
For property investors carrying debt through or alongside a trust structure, it's also worth reviewing your investor loan options in parallel with any structural review. Restructuring a trust can affect how lenders assess your income and serviceability — you can check your borrowing power to understand how your capacity might change under a different ownership structure.
Dorian Traill, Senior Wealth Planner at Metropole, provides a detailed breakdown of the proposal in Property Update's analysis. The key message is consistent with what experienced advisers are saying across the board: use the time before 2028 to obtain coordinated legal, tax, and financial advice, and make major structural decisions only once Parliament has settled the final rules.