Policy Brief — Protecting Self-Funded Retirees

Protecting self-funded retirees from an unintended tax outcome

Treasury's proposed 30% minimum trustee tax is aimed at high-wealth tax minimisation. Applied without an income floor, it also reaches thousands of Australian self-funded retirees relying on long-established family trusts for modest retirement income, family succession, and support for the next generation.

Core recommendation. Introduce a net trust income threshold of $100,000–$150,000 before any minimum trustee tax applies. Trusts below the threshold keep flow-through tax treatment; trusts above it remain fully subject to the measure. This preserves Treasury's revenue integrity goal for large-scale avoidance while protecting compliant, modest family trusts.

30% — proposed flat trustee tax $100k–$150k — proposed safe threshold ≈$130,000 — average restructuring duty hit

How the flat rate erodes modest retiree income

A flat 30% tax at the trustee level bypasses two protections an individual retiree would otherwise have: the $18,200 tax-free threshold, and the lower personal tax brackets that apply to modest income. Franking credits and other tax credits attached to trust distributions also become trapped — they can't be fully used or refunded to a low-rate beneficiary once the tax is paid upfront at the trustee level.

Illustrative example. A retiree receiving $40,000 in trust distributions currently pays approximately $3,800 in effective tax. Under a flat 30% trustee tax with trapped credits, that rises to approximately $12,000 — a reduction of about $8,200, or over 20%, in net disposable income.

The State stamp duty trap

Restructuring out of a discretionary trust to avoid the new federal tax means transferring assets — and transferring real property out of a trust triggers State transfer (stamp) duty, separately from any federal measure. Averaged across Victoria, New South Wales, and Queensland, the estimated duty on a standard $2.5 million commercial property portfolio is approximately $130,000.

This creates a double penalty: retirees either pay the new punitive federal trustee tax and stay in the trust, or restructure out of it and face an immediate six-figure state duty bill that erodes the same capital the trust was meant to protect.

Existing tools already do this job

Treasury does not need a blanket rate to address deliberate avoidance — it already has targeted legislative tools:

• Section 100A, Income Tax Assessment Act 1936 — nullifies reimbursement agreements that shift trust entitlements to low-rate beneficiaries while the real economic benefit sits elsewhere.
• PCG 2022/2 — the ATO's risk-zone guideline, which already classifies ordinary, low-risk family distributions separately from high-risk arrangements.

Enforcement should lean on these existing, targeted frameworks rather than a uniform penal rate that doesn't distinguish compliant retirees from aggressive tax minimisation.

What we're asking advocacy groups and policymakers to do

• Adopt the threshold proposal — include the $100,000–$150,000 net income threshold in Treasury advocacy submissions.
• Request transition relief — advocate for harmonised federal–state relief from stamp duty, alongside the proposed CGT rollover, for retirees who are forced to restructure legacy trust holdings.