Labor Revises Trust Tax: What Broker Business Owners Must Know
Treasury's revised trust tax offers brokers a new election to avoid the 30% minimum — but industry warns the flexibility trade-off is steep.
The original problem — and what changed
In the May 2026 budget, the Albanese government proposed a blanket 30% minimum tax on distributions from discretionary trusts. The policy targeted income splitting — the practice of distributing trust income across multiple beneficiaries to reduce the overall tax bill. The government projected the measure would raise approximately $4.5 billion annually by the end of the decade.
The backlash from small business groups was swift. The Mortgage & Finance Association of Australia (MFAA) and the Commercial & Asset Finance Brokers Association (CAFBA) warned that broker businesses operating through discretionary trusts would be forced into complex and costly restructures. A restructure could mean stamp duty exposure at a state or territory level, plus significant legal, accounting, valuation and administrative costs — and potentially a requirement to revisit ownership arrangements, existing loan documents, and asset security structures.
Responding to that pressure, Treasurer Jim Chalmers released exposure draft legislation on Thursday 3 September, as reported by MPA Australia. The revised proposal gives discretionary trusts in existence as at 1 July 2028 a new option: rather than restructuring, they can elect into a "fixed distributions" regime and avoid the 30% minimum tax entirely.
How the fixed-distribution election works — and where it costs you
Under the election, a trustee nominates which beneficiaries receive what share of trust income, and locks that pattern in. Beneficiaries can include individuals, companies, and eligible trusts. Income distributed under the election is taxed at the recipient's standard personal or company tax rate — not at the 30% minimum rate. There is no limit on the number of beneficiaries who can be nominated at the outset.
Critically, the election does not require a transfer of assets or a formal restructure, which means state and territory stamp duty should not be triggered. The Commonwealth has also proposed three years of rollover relief for certain capital gains tax and income-tax consequences for trusts that choose to restructure instead.
For broker businesses with stable and predictable distribution patterns — where the same people have received consistent shares of income for years — this looks like a genuine win. The structure stays, the tax treatment stays, and there is no forced reorganisation.
The cost is flexibility.
Under the revised rules, nominated beneficiaries can only be changed in limited circumstances: a beneficiary's death, or a family breakdown such as a divorce. If a trustee distributes income in a way that is inconsistent with the election, the election is revoked. Worse, the trust's taxable income for that year is then taxed at the top marginal tax rate plus the Medicare levy — not simply returned to the 30% minimum — before reverting to the 30% regime in future years.
Joseph Daoud, founder of It's Simple Finance, described the dilemma bluntly when speaking to MPA Australia.
"It's a menu with two bad options," he said. "Lock in your family trust distributions forever, and the only way out is a funeral or a divorce. Or unwind the trust entirely and pay stamp duty for the privilege of leaving. Get it wrong once as a trustee and you cop the top marginal rate plus the Medicare levy. That's not a safety valve, that's a trapdoor."
COSBOA's verdict: better, but still flawed
The Council of Small Business Organisations Australia (COSBOA) has acknowledged the revised proposal as an improvement on the original, while maintaining that the broader policy design remains problematic.
COSBOA chief executive Skye Cappuccio said that businesses able to maintain consistent distributions now had a viable pathway to continue operating through their existing trust without triggering the higher tax treatment. For a mum-and-dad business, that could mean avoiding a higher tax burden without a forced restructure of an arrangement built over many years.
But Ms Cappuccio flagged the significant trade-off: "Businesses choosing this pathway may retain their existing structure and tax treatment, but they will give up some of the flexibility over distributions that is an important feature of discretionary trusts. That flexibility is particularly important to succession planning in family trusts."
COSBOA has also described the penalty for revoking the election as "unnecessarily punitive," arguing it does not reflect how family business circumstances evolve over time. The organisation has called on the government to amend this aspect before the legislation proceeds.
Consultation on the exposure draft is open until 18 September.
What you need to do now
For broker business owners running through a discretionary trust, the action item is clear: talk to your accountant before the consultation period closes on 18 September. The core question is whether your distribution history is consistent enough for the fixed-distribution election to work for your business — and whether the flexibility you would give up is flexibility you actually need.
Brokers thinking about succession — bringing in a partner, transitioning a book, or passing a practice to the next generation — may find the constraints of the election a poor fit. In those cases, the three-year capital gains tax rollover relief may make a restructure more manageable than it initially appears, and the earlier you start that conversation, the more runway you have.
For borrowers, not brokers, following this debate: the key practical point is that trust structure uncertainty can complicate income verification for lenders. If you hold an investment property through a trust, or your business income flows through one, speak with a broker before making any structural changes. Our borrowing power calculator can help you model your position under different income scenarios. Those exploring investor home loan options should also be aware that lender policies on trust borrowers vary significantly — professional advice before any restructure is essential, particularly if you plan to refinance a trust-held property at the same time.