Client Note

Discretionary Trust Changes — 30% Minimum Tax

Core change

The Government has proposed a new 30% minimum tax on discretionary trusts from 1 July 2028. While detail remains incomplete, the direction is toward reduced flexibility and higher baseline taxation.

What this means (practically)

• Income splitting benefits largely removed
• New trustee-level tax applied regardless of beneficiary tax position
• Non-refundable credits create inefficiencies for many distributions
• Corporate beneficiary strategies materially impaired

• Testamentary trusts retain their tax status after reluctant political backflip 

Practical implications

• Effective tax rates on trust income increase across most scenarios
• Trusts become less effective as income planning vehicles
• Asset protection remains a primary justification for using a trust
• Greater emphasis on alternative structures (companies, individuals, super)

Key risks

• Effective rates approaching or exceeding 60% in some structures
• Complex and costly restructuring decisions without full legislative clarity

• Exposure to Imputation credit policy shift and other tax risks via company structures

• Trapped credits and inefficient income flows are possible under the new system
• Interaction with other Budget measures - increasing overall tax burden

Immediate considerations

• Do not implement structural changes prematurely

• Review role of trusts within overall family structure
• Identify areas of complexity and potential simplification opportunities
• Consider alternative ownership models where appropriate

Our view

The direction of tax policy is clear — discretionary trusts will no longer provide the flexibility they once did. Their ongoing role will be narrowed toward asset protection and structural control rather than tax optimisation. A measured, coordinated review of all structures is essential before acting.

Disclaimers

Financial Product Advice

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Currency of Income Tax Advice

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Chancellors Chartered Accountants | Private Wealth Advisory