Labor's Trust Tax Plan: What Property Investors Need to Know

Proposed federal budget changes could push the effective tax rate on trust distributions to corporate beneficiaries above 51 per cent from July 2028.

If you hold investment property inside a family trust — or if your tax strategy involves distributing income to a related company — Labor's latest budget measure deserves close attention before it takes effect. According to analysis published by Property Update, the government's 2026 budget papers reveal a plan to impose a minimum effective tax rate of 51 per cent on distributions from discretionary trusts to corporate beneficiaries, commonly known as bucket companies.

The change is proposed to take effect from 1 July 2028, with a three-year restructuring window opening from 1 July 2027.

What the Budget Papers Actually Propose

The mechanics work like this. Currently, a family trust can distribute income to a related company — a bucket company — which pays company tax at 30 per cent. This allows families to park funds at the corporate rate temporarily until they need them, at which point the company pays out franked dividends.

Under the proposed changes, a minimum tax at the trust level would apply before money can be distributed to the bucket company. Property Update's analysis illustrates the effect with a clear example: $100 earned by a trust would first attract 30 per cent trust-level tax, leaving $70 to flow to the bucket company. The company would then pay 30 per cent company tax on that $70 — being $21. That means $51 in tax has been paid on the original $100 before an individual shareholder has received anything.

For shareholders already on the top marginal rate, there could reportedly be an additional $11.90 in top-up tax when the money is finally paid out, taking the total effective rate to around 63 per cent in some scenarios. Australia's franking credit system was specifically designed to prevent income being taxed twice at both the company and individual level — the proposed structure appears to create a new layer on top of that system for trust-distributed income.

Who Is Actually Affected?

Property Update makes an important point: this isn't a measure targeting only very wealthy families with complex offshore arrangements. The people most likely to be caught include family businesses, medical and professional practices, farming groups, property investors, and intergenerational wealth structures where income flows from non-personal exertion activities — investment property being a prime example.

If you hold rental properties or commercial real estate inside a discretionary trust that distributes to a bucket company, this measure is directly relevant to your structure. The government is framing it as a fairness issue — the argument being that salary earners can't split their income across different entities, so business owners and investors shouldn't have that flexibility either.

The counter-argument, as Property Update explains, is that business owners and investors carry commercial risks that wage earners typically don't. They borrow, they employ people, they face market cycles and regulatory changes. The ability to smooth income across years and defer personal tax isn't just a planning tool — it's a legitimate way to manage cash flow through lean years.

Family trusts also serve purposes beyond tax efficiency: asset protection, succession planning, protecting vulnerable beneficiaries, and structuring intergenerational wealth transfers. When the tax treatment of a structure becomes punitive, families don't simply absorb the cost — they restructure, sometimes into arrangements that are more complex and more expensive than what they had before.

What Property Investors Should Do Now

There are still nearly two years until the proposed start date, and a restructuring window is planned to open from 1 July 2027. That sounds like a long runway — but complex trust structures take time to review and adjust properly. Property Update also flags that any restructuring may involve stamp duty obligations at the state level, a cost the federal budget papers apparently did not address.

If you hold investment properties inside a family trust with a related corporate beneficiary, the most important steps to take now are practical ones.

First, review the structure with a qualified tax accountant and solicitor before making any decisions. This is not a situation for DIY changes, and the detail of the final legislation matters — the proposal is still at the budget-announcement stage.

Second, consider how any structural change might interact with your lending arrangements. If assets move between entities — from a trust into personal ownership, or into superannuation — your mortgage may need to be refinanced accordingly, since some lenders assess trust-held property differently for serviceability purposes. Use a [borrowing power calculator](/calculators/borrowing-power) to model how a structural change could affect your borrowing capacity before you commit to anything.

Third, if you're an investor currently deciding whether to buy a new property and considering holding it inside a trust, this proposal adds a meaningful reason to get tax advice upfront. The attractiveness of trust structures for income management could look quite different by the time any new loan matures.

For anyone exploring [investment property finance](/home-loans/investor) in the current environment, the broader message from the budget papers is that the government is taking a closer look at how investment income is taxed and held. That's not a reason to make rushed decisions — it's a reason to make sure your structure is reviewed by someone who understands what's coming.

Read the full analysis at [Property Update](https://propertyupdate.com.au/is-labor-quietly-trying-to-kill-off-family-trusts/).