Discretionary trusts: What the proposed changes mean

Family trusts have long been a popular structure for managing business income, investments and succession planning. However, a major change is proposed from 1 July 2028, with the Federal Government planning to introduce a 30 per cent minimum tax on discretionary trust income and reduce some of the tax advantages these structures have traditionally offered.i

Treasury estimates there are approximately 840,000 discretionary trusts in Australia and around 350,000 active small businesses operating through these structures.ii

The proposal, outlined in a consultation paper, is that from 1 July 2028, trustees will pay 30 per cent tax at trust level before distributions to beneficiaries.iii

Because the trustee-paid tax credits would be non-refundable, individual and other non-corporate beneficiaries generally would not be able to reduce the tax on discretionary trust income below 30 per cent, even if their personal tax rate is lower.

Proposed exemptions

A number of entities are exempt, with fixed and widely held trusts, complying superannuation funds, charitable trusts, deceased estates and special disability trusts, all excluded. Testamentary trusts established for genuine testamentary purposes are also exempt.

Certain types of income (such as primary production income, select income for vulnerable minors and amounts already subject to non-resident withholding tax), are also excluded from the new rules.

Until the final legislation is released, key questions are yet to be clarified about calculation of taxable income, treatment of capital gains, franking credits and carried-forward losses.

Trustee-level tax changes the mechanics

Under the proposed rules, trustees would pay the 30 per cent tax upfront and beneficiaries would receive a tax credit for their share of that tax. Beneficiaries would still need to include their trust income in their tax returns, but the way the tax is collected would change.

Trustees will be required to calculate, report and pay the minimum tax and notify beneficiaries of their entitlements and associated tax credits.

Tax offsets for beneficiaries

Individual and other non-corporate beneficiaries will receive a non-refundable tax offset for the tax paid by the trustee and will be required to declare their trust income in their tax return.

Corporate beneficiaries, however, will not be able to claim credits for tax payable by the trustee. This is designed to ensure the minimum tax cannot be avoided by cycling income through a ‘bucket’ company set up simply to receive discretionary trust distributions.

As currently proposed, distributions to corporate beneficiaries could be subject to tax at both the trust and company level because corporate beneficiaries would not receive a tax credit for trustee-paid tax. Treasury is still consulting on aspects of this treatment.iv

Restructure options

For small businesses and other taxpayers wishing to restructure out of a discretionary trust into another arrangement, expanded relief from income tax consequences (including capital gains tax) will be available for three years from 1 July 2027 to 30 June 2030. The relief is an expanded version of the existing Small Business Restructure Roll-over.v

For small businesses wishing to reduce the impact of the new rules, there are other alternatives to consider, including employing beneficiaries working in the business rather than paying them trust distributions. Salary or wage payment to employees will not attract the minimum tax.

Restructuring into a company would allow you to access dividend imputation and the lower 25 per cent corporate tax if your aggregated annual turnover is less than $50 million.

What are the implications?

While no immediate action is recommended before the legislation is finalised, business owners and investors should begin assessing how the proposal could affect their current structure and whether alternative arrangements may be worth considering.

For many families, discretionary trusts will continue to provide valuable asset protection and succession planning benefits, even if some of their tax advantages are reduced.

If you would like help understanding how the new rules will affect your trust, contact our office today.

i Tax reform | ATO
ii Minimum tax on discretionary trusts factsheet | Federal Budget papers
iii Minimum tax on discretionary trusts | Consultation Paper
iv Deloitte | tax@hand
v Small business restructure roll-over | ATO

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AI is changing everything. Does your portfolio need to?

It can feel as if artificial intelligence (AI) makes its way into almost every conversation, and especially for investors. From headlines about trillion-dollar technology companies to predictions that entire industries will disappear, we are being bombarded with AI news, forecasts and investment themes every day.

For investors, the challenge is in determining who will ultimately capture the value and how to avoid concentrating portfolios around a handful of highly publicised winners.

The most sensible response may be the least exciting: stay diversified, invest regularly and resist the temptation to chase the latest AI headline.

Beyond the AI giants

Much of the media attention has focused on the companies developing AI models and infrastructure. These include “The Magnificent Seven” firms such as Nvidia, Microsoft, Alphabet, Apple, Amazon, Meta and Tesla, which are investing hundreds of billions of dollars into AI-related infrastructure and services.

These companies have obviously benefited from the AI boom. Nvidia, for example, has become one of the world’s most valuable companies because its graphics processing units (GPUs) power much of the world’s AI computing capacity.

But successful investing rarely comes from simply identifying a major trend. The important question is who benefits most and for how long.

History shows that new technologies often create value far beyond the companies that invent them. Railways, electricity, automobiles and the internet all reshaped economies, but the eventual winners were not always the pioneers that first captured investors’ attention and there were casualties along the way.

Categorising AI

Investors can think of AI opportunities in three broad categories.

The first category is the direct AI beneficiaries such as semiconductor manufacturers, cloud computing providers, data centre operators and AI software developers. These are the companies building the infrastructure and tools that enable AI.

The second category includes businesses that successfully use AI to strengthen their competitive advantages. These companies may not be seen as AI businesses, yet they stand to benefit significantly through higher productivity, lower costs, improved customer experiences and new revenue streams.

 The third category includes businesses that indirectly benefit from AI-driven investment. Growing demand for data centres, computing power and electricity is creating opportunities for resource companies, energy infrastructure providers, network operators and industrial businesses.

Private equity and venture capital

Investors focusing solely on listed markets may be seeing only part of the AI story.

Beyond the listed market, many of the most innovative AI businesses remain privately owned. AI companies attracted almost half of all global venture capital funding in 2025, as investors backed startups developing applications in areas such as healthcare, robotics, autonomous systems, cybersecurity and enterprise software.i

For investors with access to diversified private market investments, exposure to venture capital and private equity can provide participation in AI innovation beyond the listed market. However, these investments typically involve higher risk and reduced liquidity.

The risk of AI ‘roadkill’

Every technological revolution produces winners and losers.

During the internet boom of the late 1990s, many investors correctly identified that the internet would transform society. What they got wrong was assuming every technology company would prosper. Many failed.

As with every major technological shift, AI is likely to leave some casualties behind.

Businesses that rely on repetitive information processing, basic content creation or undifferentiated software solutions may find themselves under significant pressure. Companies whose products can be easily replicated by increasingly capable AI tools could see profit margins erode.

The challenge for investors is that identifying future casualties in advance is rarely straightforward. That’s why diversification remains so important.

Why diversification wins

The biggest investment risk may be in becoming overexposed to a small number of companies that seem to be unbeatable today.

Technology leaders change over time. Diversification acknowledges this uncertainty.

Some of the strongest beneficiaries may emerge from unexpected areas such as energy infrastructure, industrial automation, logistics, healthcare or specialised software. Others may come from venture capital and private equity portfolios that provide access to innovations before they reach public markets.

Diversification also helps investors resist the temptation to chase every new headline. In a rapidly changing AI landscape, spreading risk across sectors, asset classes and business models may prove more valuable than trying to pick every winner.

i State of Venture 2025 | CB Insights Research

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RBA Announcement – August 2026

At its meeting this month, the Board decided to leave the cash rate target unchanged at 4.35 per cent.

Inflation picked up materially in the second half of 2025, and information since the beginning of this year confirms that some of the increase reflected greater capacity pressures.

Short-term measures of inflation expectations have eased but remain higher than earlier in the year.

Please click here to view the Statement by the Monetary Policy Board: Monetary Policy Decision. Please get in touch if you would like to discuss recent rates or if you would like to review your finance options.

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