Australia’s 30% Trust Tax: What Small Businesses Must Know by July 2028

The Australian Treasury released a consultation paper on July 9 proposing a 30% minimum tax on discretionary trusts from July 1, 2028. Around 350,000 small businesses operate through trusts today, with roughly 210,000 family businesses expected to face a higher tax burden. The government offers rollover relief from July 1, 2027 to June 30, 2030, but it does not cover stamp duty, legal fees, or accounting costs. Submissions close July 31, 2026.

Why the government is targeting discretionary trusts

The High Court’s Bendel decision in 2026 rejected the ATO’s argument that unpaid present entitlements (UPEs) in trusts were loans. Treasury responded by proposing the 30% minimum tax to align trust income with wage earner tax rates and reduce income-splitting benefits. Treasurer Jim Chalmers framed the reform as fairness: trust distributions should face similar tax treatment to regular employment income.

Who faces the 30% tax and when

The 30% minimum tax applies to discretionary trusts’ taxable income from July 1, 2028, unless a higher rate or exclusion applies. Budget papers estimate 210,000 small family businesses could face higher tax. The government’s rollover relief window runs from July 1, 2027 to June 30, 2030, creating a three-year planning deadline. Businesses must restructure into a company, fixed trust, or individual structure to avoid the tax.

Rollover relief covers capital gains but leaves gaps

The expanded Small Business Restructure Rollover (SBRR) removes federal capital gains tax and income tax costs on restructures. However, rollover relief does not cover state and territory stamp duty, which tax experts warn could impose substantial costs on small businesses. Legal, accounting, and employment contract revision costs also fall outside the relief. CPA Australia called this a “postcode lottery,” as stamp duty rates vary by state.

Concerns over unintended consequences

COSBOA CEO Skye Cappuccio warned that once the Medicare levy is factored in, family members paid through a trust will face an effective minimum tax rate of 32%. CPA Australia policy adviser Gavan Ord warned the uncertainty could push small business owners toward illegal phoenixing activity, where businesses cease trading under one ABN and restart under another to avoid debts. The combination of trust tax changes, increased ATO collection action, and costly restructuring requirements creates pressure on struggling operators.

Churches face $3 billion donation hit

Religious leaders warned the Treasury that the 30% trust tax could reduce charitable donations by $3 billion over five years from 2028, climbing to $8 billion if business donations through partnerships are included. The consultation paper kept the tax measure unchanged despite these appeals. Mark Fowler, principal at Fowler Charity Law, said he had hoped the legislation would exclude distributions to charities and tax-exempt not-for-profits, but no carve-out has been announced.

What investors and business owners should do now

Businesses operating through discretionary trusts should seek tailored tax and legal advice before the July 31 consultation deadline. The three-year restructuring window from July 2027 to June 2030 is firm. Owners must weigh the 30% tax burden against restructuring costs, including state stamp duty, legal fees, and accounting expenses. Regional and smaller operators face the hardest choice, as fixed costs hit them proportionally harder.

Final Thoughts

The 30% discretionary trust tax arrives July 1, 2028, forcing 350,000 Australian small businesses to restructure or accept higher tax. Rollover relief removes federal capital gains tax but leaves stamp duty and legal costs uncovered, creating a postcode lottery. Early advice is essential.

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The content shared by Meyka AI PTY LTD is solely for research and informational purposes.  Meyka is not a financial advisory service, and the information provided should not be considered investment or trading advice.