Treasury's July 2026 Consultation Paper proposes a 30% flat trustee tax on discretionary trust income from 1 July 2028, to align trust taxation with the integrity of the wider tax system. We support that objective — and set out where the current design risks catching compliant families alongside the arrangements it's meant to target.
Treasury's own distributional analysis finds that trust wealth and high-income trust distributions are concentrated within a small tier of high-wealth entities — fewer than 15% of active small businesses operate through a discretionary trust at all. The proposed 30% minimum tax is designed to close that gap and align trust taxation with the rates paid by salary and wage earners.
The difficulty is one of precision. As currently designed, the tax applies uniformly across all non-fixed discretionary trusts, with no income floor — meaning it reaches modest, long-established family trusts with a demonstrated compliance history in exactly the same way it reaches the arrangements it's aimed at.
Treasury's proposed three-year federal CGT rollover (2027–2030) is meant to make restructuring out of a discretionary trust straightforward. But transferring real property out of a trust still triggers State transfer duty — a cost the federal rollover doesn't touch. For trusts holding commercial property, this can turn a "relief window" into a six-figure liability.
| Jurisdiction | Estimated duty |
|---|---|
| Victoria (general duty, Duties Act 2000) | $142,500 |
| New South Wales (Duties Act 1997) | $117,140 |
| Queensland (Duties Act 2001) | $132,025 |
| Three-state average, $2.5M portfolio | ≈ $130,555 |
A flat trustee-level tax bypasses the individual tax-free threshold and lower personal tax brackets. For beneficiaries in low marginal rates — self-funded retirees, or adult children with little taxable income — the resulting non-refundable offset can't be used or refunded, directly reducing what reaches them for living costs or education expenses.
Discretionary trusts already operate inside a detailed anti-avoidance regime. Recent case law shows both how far it reaches, and where Parliament — not administrative guidance — needs to set the boundary.
Land tax consequences of restructuring, and the mechanics of specific fixed-trust elections, raise related questions we haven't yet developed a full position on — see Land Tax Consequences.
These recommendations preserve the measure's integrity objective for high-wealth structures, while protecting compliant families operating exactly as Parliament's existing framework already anticipates.
Trusts below the floor retain flow-through tax treatment; the full measure continues to apply above it — directing compliance cost toward the high-wealth entities where Treasury's own data shows the risk is concentrated.
Testamentary trusts are already exempt because they serve genuine family purposes rather than aggressive avoidance. That same reasoning applies to long-established, compliant family investment trusts.
Federal CGT relief only achieves its intended effect for property-holding trusts if State and Territory governments coordinate matching transfer-duty relief through National Cabinet.