Trust Tax Shake-Up: What Property Investors Must Know

Treasury's plan to impose a 30% minimum tax on discretionary trust income from July 2028 could reshape how thousands of property investors hold assets.

If you own investment property through a discretionary trust, a significant change to how that income is taxed is on the horizon. The Adviser reports that Treasury has released a detailed consultation paper outlining the Albanese government's 2026–27 budget proposal to impose a 30 per cent minimum tax on the taxable income of discretionary trusts from 1 July 2028.

A three-year restructuring window will be available from 1 July 2027 for those who want to move assets into a different structure before the new rules take effect. Submissions on the consultation paper close on 31 July 2026 — which is very soon.

Who Is Affected?

The new minimum tax applies to discretionary trusts — the structures commonly used by family groups and small businesses to hold investment assets, including property. Under these arrangements, trustees decide how income is distributed to beneficiaries each year, which has historically made them a tax-efficient choice when beneficiaries are on different marginal rates.

Several structures are excluded from the new regime: fixed trusts, complying superannuation funds, special disability trusts, deceased estates, charitable trusts, and discretionary testamentary trusts established for genuine estate planning purposes through a will. Primary production income is also excluded, following pressure from farming communities concerned about succession planning.

Treasury estimates that fewer than 15 per cent of active small businesses operate through discretionary trusts, and says more than 90 per cent of small businesses would not be caught by the minimum tax in any given year. Even so, the Council of Small Business Organisations Australia (COSBOA) estimates that around 350,000 small businesses currently use these structures. Budget papers suggest roughly 210,000 small family businesses could face a higher tax burden from 2028 under the current proposal.

What the 30% Floor Means in Practice

The minimum tax does not change how trusts operate day to day. Trustees will still distribute income to beneficiaries each year, beneficiaries will still declare those distributions in their personal returns, and trustees remain assessable on the trust's taxable net income in proportion to their entitlement. What changes is the floor: no beneficiary can receive a trust distribution and pay an effective tax rate below 30 per cent.

The sting, as COSBOA CEO Syke Cappuccio notes in The Adviser, is that the tax credits flowing to beneficiaries will not cover the Medicare levy. This means the effective minimum rate for many trust beneficiaries will be closer to 32 per cent.

Cappuccio pointed out that to face a 32 per cent effective tax rate as an employee you would need to be earning above $200,000 a year — "well above what many small-business owners pay themselves." For families who have been distributing trust income to adult children or lower-income spouses, the economics of holding investment property through a discretionary trust will change materially from July 2028.

The Restructuring Window — and Its Costs

Treasury has proposed a three-year rollover relief window from 1 July 2027, allowing assets to be transferred out of a discretionary trust into a company or fixed trust without triggering an immediate capital gains tax bill or other income tax liabilities.

However, The Adviser reports that this relief is "confined to tax consequences." It does not cover professional fees — legal and accounting costs remain payable — and any stamp duty on asset transfers is still due. For property owners, state stamp duty on a restructure can be substantial depending on the value and location of the property held.

For those who restructure into a company, there is a meaningful trade-off: while the corporate tax rate applies and profits can be retained within the entity, the capital gains tax discount and indexation available to individuals and trusts are lost for assets held by the company. If you hold properties with significant unrealised capital gains, this is a critical consideration before you act.

What Property Investors Should Do Before 31 July

The consultation window is short — submissions close on 31 July 2026. This is your opportunity to provide input on the detail of the proposal, including the Medicare levy treatment, carve-outs, and transitional rules. COSBOA has encouraged small businesses that are affected to engage with the process.

More importantly, now is the time to understand your exposure with your accountant and financial adviser. Key questions to raise:

- How much trust income am I currently distributing at effective rates below 30 per cent, and how would the new floor change my annual tax position? - Would restructuring trigger stamp duty in my state, and how much would that cost against the tax benefit? - If I move to a company structure, what does losing the CGT discount mean for my existing portfolio?

Do not rush a restructure. The relief window does not open until 1 July 2027, and the minimum tax itself does not apply until 1 July 2028. There is time to plan carefully — but starting those conversations before 31 July means you can also participate in shaping the final rules.

If you do restructure, your borrowing position may change. Lenders assess different entity types differently, and a move from a discretionary trust to a company can affect your capacity to refinance existing loans or access new investment property finance. Use our refinance savings calculator to model repayment scenarios as you plan ahead.

This is still a consultation — the final legislation may look different from the current proposal. But the direction is clear, and the investors who take advice early will be best placed to respond.

Full reporting from The Adviser on the Treasury consultation paper