For decades, discretionary family trusts have been popular with Australian families, investors and business owners. They can provide flexibility when distributing income, support asset protection and succession planning, and help families manage business and investment assets across generations.
However, the environment surrounding family trusts is changing.
The 2026–27 Federal Budget proposes a 30% minimum tax on discretionary trust taxable income from 1 July 2028, together with transitional rollover relief for eligible businesses and taxpayers considering restructuring. At the same time, the ATO continues to scrutinise trust distributions, section 100A arrangements, family trust elections, franking credits and Division 7A issues.
So, are family trusts still worth it?
The answer is: possibly, but the reasons for using one need to be carefully considered.
A family trust should no longer be established simply because it is considered a “tax-effective structure”. Tax, asset protection, succession, cash flow, compliance costs, investment strategy and long-term family objectives all need to be considered.
What Is a Discretionary Family Trust?
A discretionary trust is a structure where a trustee holds assets for a group of beneficiaries. Unlike a company, beneficiaries generally do not have fixed ownership percentages. Subject to the trust deed and tax law, the trustee can decide how income and capital are distributed among eligible beneficiaries.
This flexibility has historically made family trusts attractive for:
- family businesses
- investment portfolios
- property investments
- wealth accumulation
- intergenerational wealth planning
- asset protection strategies
- distributing income between family members.
However, flexibility also creates complexity. Trusts must be properly established and administered, resolutions need to be valid, distributions correctly documented and tax consequences understood.
Why Have Family Trusts Been Popular in Australia?
Income Distribution Flexibility
Subject to the trust deed and tax law, a discretionary trust can potentially distribute different types of income to different beneficiaries. This can provide flexibility where family members have different taxable incomes.
However, the proposed 30% minimum tax from 1 July 2028 may reduce the tax benefit of income splitting for trusts within the new rules.
Asset Protection
Trusts can potentially provide an additional layer of separation between business or investment assets and individuals.
However, a trust is not an absolute asset protection shield. Protection depends on the circumstances, trustee arrangements, guarantees, insolvency law and how the trust has been operated.
Succession Planning
A properly structured trust can provide flexibility when control and economic benefits need to be managed across generations. This can be particularly relevant for families with operating businesses, investment portfolios, property and significant accumulated wealth.
Long-Term Wealth Management
A family trust can provide a framework for holding and managing family assets over an extended period. However, the structure should be reviewed as family circumstances and wealth objectives change.
The 2026 Budget Changes the Family Trust Equation
The most significant recent development is the Federal Government’s proposed 30% minimum tax on discretionary trusts.
Under the proposal, from 1 July 2028, trustees of discretionary trusts within the rules will pay a minimum tax of 30% on taxable income. Beneficiaries will continue to declare their trust income, with non-corporate beneficiaries receiving non-refundable credits for tax paid by the trustee.
The Government says the reform is intended to reduce the tax advantage created by income splitting through discretionary trusts.
The proposal includes exclusions for certain categories, including:
- fixed and widely held trusts
- complying superannuation funds
- special disability trusts
- deceased estates
- charitable trusts
- certain primary production income
- certain income relating to vulnerable minors
- certain non-resident withholding tax amounts
- certain testamentary trust assets existing at the time of announcement.
Importantly, this is not a 30% minimum tax on every type of trust. It specifically targets discretionary trusts within the proposed rules.
What Does the 30% Minimum Tax Mean for Family Trusts?
The proposed changes could significantly alter the tax outcomes for some discretionary trusts.
Historically, a family trust may have distributed taxable income among beneficiaries with lower marginal tax rates. From 1 July 2028, the proposed minimum tax could reduce the benefit of this strategy for trusts within scope.
However, the impact will depend on each trust’s circumstances. The Government estimates that many small businesses will not face an additional tax liability in every year.
There is therefore no reason for every family trust to be dismantled simply because of the Budget announcement. Trustees should instead model future tax outcomes based on their expected income, beneficiaries and distribution strategy.
Should You Move Your Family Trust Into a Company?
The proposed changes may make companies more attractive for some families and businesses, particularly where profits are intended to be retained and reinvested.
However, a company is not automatically better than a trust. A company has shareholders with defined ownership interests, while a discretionary trust operates differently and can provide greater distribution flexibility.
Moving existing assets can also create tax, legal and transaction consequences. The decision should therefore be based on a detailed comparison rather than simply comparing the proposed trust minimum tax with the company tax rate.
New Rollover Relief Could Make Restructuring Easier
The 2026 Budget proposes a three-year period from 1 July 2027 to assist eligible small businesses and others who choose to restructure from discretionary trusts into structures such as companies or fixed trusts.
The proposed relief is intended to reduce income tax and CGT consequences that might otherwise arise.
However, restructuring may still involve:
- stamp duty
- financing and lender requirements
- asset protection
- legal ownership
- trust deeds
- shareholder arrangements
- estate planning
- Division 7A
- future distributions
- accounting and administration.
The rules should be assessed once legislation and detailed requirements are settled.
Family Trust Elections: Why They Matter
A Family Trust Election (FTE) can provide access to certain tax concessions, including benefits involving franking credits and tax losses in appropriate circumstances.
However, an FTE also restricts distributions outside the relevant family group.
The ATO confirms that Family Trust Distribution Tax (FTDT) is imposed at 47% where the relevant rules apply to distributions outside the specified individual’s family group.
This makes family trust elections particularly important during succession planning and restructuring.
What Happens If a Family Trust Distributes Outside the Family Group?
This can become expensive.
If a trust has made an FTE and distributes to an entity outside the relevant family group, FTDT may apply at 47%. A $100,000 distribution caught by the rules could therefore potentially result in $47,000 of tax.
Trustees should not assume that a distribution between related entities is automatically permitted. Family trust elections and family groups need to be reviewed before significant distributions or restructures.
Intergenerational Wealth Transfers Require Careful Planning
Succession planning can become complicated when a family has multiple trusts, companies and beneficiaries.
For example:
- a parent may be the specified individual of one trust
- an adult child may control another trust
- companies may sit beneath different trusts
- investment assets may be held across multiple entities.
A commercially sensible distribution can still have unexpected tax consequences if family trust elections and family groups are not properly considered.
What Is Section 100A and Why Does It Matter to Family Trusts?
Section 100A can apply where a beneficiary is made presently entitled to trust income, but another person receives the benefit as part of a reimbursement arrangement.
The ATO has published Taxation Ruling TR 2022/4 and Practical Compliance Guideline PCG 2022/2 outlining its approach.
Arrangements that may attract scrutiny include situations where:
- a beneficiary receives a distribution but does not receive the economic benefit
- income is redirected to another person
- arrangements are designed to achieve a lower tax outcome
- trust entitlements do not reflect the beneficiary’s economic position.
Trustees should maintain records explaining the transactions and why beneficiaries dealt with their entitlements as they did.
Why Section 100A Matters for Family Businesses
Section 100A can be particularly relevant where trusts distribute income among parents, children, companies and other related entities.
A distribution should not be treated simply as an accounting entry. There should be a clear understanding of:
- who was made presently entitled
- why the distribution was made
- what happened to the entitlement
- who ultimately benefited
- what agreements existed
- whether the arrangement has a genuine commercial or family purpose.
Good documentation is increasingly important.
The Bendel Case and Division 7A: What Trusts Need to Know
The Bendel litigation has attracted significant attention among family trust advisers and business owners. The Federal Court considered whether an unpaid present entitlement from a trust to a private company beneficiary could constitute a “loan” for Division 7A purposes.
The Court rejected the Commissioner’s construction of the relevant definition of “loan” in the provision considered.
However, the broader implications remain important. Trust distributions to corporate beneficiaries should not be treated casually. Where income is distributed to a company but cash is not physically paid across, trustees should carefully consider the trust deed, accounting treatment, Division 7A and applicable ATO guidance.
What About Franking Credits and the 45-Day Holding Rule?
Franking credits can be valuable to family trusts and beneficiaries, but eligibility rules apply.
Broadly, the holding period rule requires shares to be held “at risk” for at least 45 days during the relevant qualification period, subject to exceptions.
This can matter where a trust has a corporate beneficiary or investment portfolio containing dividend-paying shares. Failing the relevant requirements can affect access to franking credit benefits.
Are Family Trusts Still Worth It for Small Business Owners?
For many small business owners, the answer may still be yes, but the calculation is changing.
A family trust may remain useful where:
- income distribution flexibility is important
- the family has multiple beneficiaries
- succession planning is a priority
- asset protection is important
- investment assets are being accumulated
- the trust is expected to operate across generations
- compliance costs are justified by the benefits.
However, the proposed minimum tax means the tax advantages may be less significant for some families from 2028 onwards.
When Might a Company Be More Attractive Than a Family Trust?
A company may be worth considering where the main objective is to retain profits and reinvest them.
This may suit businesses that:
- are growing rapidly
- want to retain earnings
- are reinvesting profits
- may require external finance
- plan to introduce investors
- want clearly defined ownership interests.
A company does not provide the same distribution flexibility as a discretionary trust. The decision should therefore be based on long-term objectives rather than tax rates alone.
Should You Close Your Existing Family Trust?
Not necessarily.
The proposed 30% minimum tax does not mean every family trust should be closed.
Before making a decision, consider:
How much income does the trust generate?
A trust with modest income may be affected differently from one distributing substantial business or investment income.
Who receives the income?
If distributions are already made to beneficiaries with tax rates of 30% or higher, the impact may differ from a trust relying heavily on lower-tax-rate beneficiaries.
Is the trust retaining wealth?
The proposed changes may make the choice between a trust and company more important where income is being accumulated and reinvested.
What assets does the trust own?
Business, property and investment assets can each create different tax and structural considerations.
What is the family’s long-term succession plan?
A structure that works today may not be appropriate for the next generation.
Don’t Forget the Cost of Changing an Existing Structure
Moving from a family trust to a company is not necessarily straightforward.
Transferring assets can potentially create:
- capital gains tax
- stamp duty
- refinancing costs
- legal and accounting costs
- transaction costs
- changes to asset protection
- estate planning consequences.
Proposed rollover relief may reduce some tax consequences for eligible restructures, but it should not be assumed that every transfer will qualify.
Existing structures should therefore be reviewed before any transfer takes place.
What Should Family Trust Owners Do Now?
1. Review Your Trust Deed
Make sure the deed remains appropriate for current circumstances and intended distributions.
2. Review Your Family Trust Election
Confirm the specified individual, relevant family group, any interposed entity elections and whether planned distributions could trigger FTDT.
3. Review Your Distribution Strategy
Analyse who receives trust income and why, and consider how the proposed 30% minimum tax could affect future distributions.
4. Review Corporate Beneficiaries
If income is distributed to a company, review how those entitlements are dealt with and consider Division 7A implications.
5. Review Section 100A Risk
Make sure distributions reflect genuine arrangements and that appropriate records are maintained.
6. Model the 2028 Tax Position
Calculate what the proposed minimum tax could mean based on expected income and distributions.
7. Compare Trust and Company Structures
If the trust primarily retains income for investment, compare future tax and administration outcomes with a company or other suitable structure.
8. Review Succession Planning
Consider who should control the trust and assets in the future and how wealth is intended to pass between generations.
Family Trust vs Company: Which Structure Is Better?
There is no universal answer.
| Consideration | Family Trust | Company |
|---|---|---|
| Income distribution flexibility | Generally high | More limited |
| Fixed ownership | No | Yes |
| Retaining profits | Can be less straightforward | Often more straightforward |
| Succession planning | Potentially flexible | Share ownership can be transferred |
| Asset protection | Potentially useful | Potentially useful, but circumstances matter |
| Administration | Can be complex | Generally structured and formal |
| Tax planning | Flexible but increasingly regulated | More predictable in many circumstances |
| Future distributions | Flexible subject to trust rules | Dividends generally linked to share ownership |
| Intergenerational planning | Potentially strong | Can work well with appropriate share structures |
| 2028 proposed trust minimum tax | Potential impact for discretionary trusts | Not subject to the proposed discretionary trust minimum tax |
This table is a starting point, not a substitute for professional advice.
Family Trusts and Intergenerational Wealth Planning
One area where trusts may continue to have significant strategic value is intergenerational wealth planning.
The Budget proposes excluding certain income from assets of testamentary trusts existing at the time of announcement from the proposed discretionary trust minimum tax. Testamentary trusts, however, are fundamentally different from ordinary discretionary family trusts.
For families with substantial wealth, estate planning may involve:
- wills
- testamentary trusts
- superannuation
- companies
- family trusts
- investment structures
- control arrangements
- beneficiary planning.
The objective is to create a structure that works while the current generation is alive and when control and wealth pass to the next generation.
The Real Question Is Not “Trust or Company?”
The more useful question is:
What do you want the structure to achieve?
Consider:
- Will profits be distributed or retained?
- Who needs access to income?
- Who should control the assets?
- Who should ultimately benefit?
- Is asset protection important?
- Are significant investment assets involved?
- Is the business growing?
- Will external investors be required?
- Is succession planning important?
- What will the structure cost to maintain?
- What could it cost to change later?
These questions are more important than simply comparing tax rates.
Conclusion: Are Family Trusts Still Worth It?
Yes, family trusts can still be worth it — but they should no longer be viewed as an automatic tax-saving structure.
The proposed 30% minimum tax on discretionary trusts from 1 July 2028 represents a significant change to Australia’s trust tax environment. Proposed rollover relief may also give eligible businesses an opportunity to restructure during a three-year period beginning 1 July 2027.
At the same time, the ATO continues to scrutinise trust distributions, section 100A arrangements, family trust elections, franking credits and corporate beneficiary arrangements.
For some families, the flexibility, asset protection and succession planning benefits of a discretionary trust may continue to outweigh the additional tax and compliance complexity. For others, particularly businesses seeking to retain and reinvest profits, a company or another structure may become more attractive.
The important point is not to make a rushed decision based on the proposed 30% rate alone.
Changing an established structure can have significant tax, legal, financing and transaction consequences. Family trust owners should instead undertake a strategic review covering tax, distributions, asset protection, business structure, succession, investment strategy and future cash-flow requirements.
The question is no longer simply:
“How much tax does my family trust save?”
It is:
“Is this still the right structure for how my family wants to own, grow, control and ultimately pass on its wealth?”
That is the question worth answering before making any structural changes.
Frequently Asked Questions About Family Trusts in Australia
Are family trusts still worth it after the 2026 Budget?
They can be. The proposed 30% minimum tax affects discretionary trusts within scope from 1 July 2028, but it does not mean every family trust will be worse off or should be closed. The impact depends on the trust’s income, distributions, assets and long-term objectives.
Will all family trusts pay 30% tax from 2028?
No. The proposed minimum tax applies to discretionary trusts within the scope of the measure. Certain trusts and types of income are specifically excluded.
Should I close my family trust before 2028?
Not automatically. Closing or restructuring a trust can create CGT, stamp duty, financing and other consequences. A detailed review should be undertaken before deciding.
Is a company better than a family trust?
It depends on your circumstances. A company may be attractive where profits are retained and reinvested, while a discretionary trust can provide greater distribution and succession flexibility. The right choice depends on the purpose of the structure.
What is the Family Trust Distribution Tax rate?
Where the relevant family trust rules apply to a distribution outside the specified individual’s family group, Family Trust Distribution Tax can apply at 47%.
What is Section 100A?
Section 100A can apply to certain trust distribution arrangements where a beneficiary’s entitlement arises from a reimbursement agreement and another person receives the benefit. The ATO has published specific guidance on its compliance approach.
What is the Bendel case?
Bendel concerned whether certain unpaid trust entitlements to a private company beneficiary constituted a “loan” for Division 7A purposes. The Federal Court rejected the Commissioner’s construction of the relevant definition of “loan”.
Should I restructure my family trust into a company?
Possibly, but the decision should be based on your circumstances and long-term objectives. The Government has proposed expanded rollover relief for eligible restructures from 1 July 2027, but the detailed requirements need to be considered before acting.
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