Australia’s proposed changes to discretionary family trusts have sparked significant concern among tax professionals and wealth managers, as new rules slated to take effect in July 2028 could impose a 30 percent minimum tax on trust distributions without any grandfathering arrangements. The government released a consultation paper earlier this month outlining these measures, part of a broader crackdown on wealth structures, though formal legislation has yet to be introduced.

Discretionary family trusts have long been a preferred vehicle for private wealth management in Australia due to their flexibility and tax efficiency. Under the new proposal, trustees would be required to pay a minimum 30 percent tax on distributions, potentially altering how trusts operate and how beneficiaries receive income. A transition period from July 1, 2027, to June 30, 2030, is proposed to enable restructures, particularly the migration of assets such as business holdings and investment properties out of trusts.

However, moving assets out of discretionary family trusts may trigger substantial state-based stamp duties, causing additional financial burdens. States and territories have yet to clarify whether concessions will be offered, leaving taxpayers uncertain about potential costs. Jenny Wong, CPA Australia’s tax lead, described the current situation as a “postcode lottery,” where restructuring expenses could vary widely depending on location.

A major concern raised by legal firms and tax advisors is the likelihood of double taxation, particularly for corporate beneficiaries, often referred to as “bucket companies.” According to law firm Piper Alderman, corporate beneficiaries could face 30 percent corporate tax on trust distributions while the trustee has already paid 30 percent minimum tax on the same income, with no offset or credit to mitigate the impact. This could result in combined tax liabilities reaching up to 60 percent on trust income, significantly reducing the attractiveness of these structures.

As a result, many family trust holders may consider exiting discretionary trusts altogether. Industry experts suggest that alternative structures such as fixed trusts, family investment companies, and corporate entities may gain popularity. Jordan Frieze, director of Accounting Advisor Group, noted an expected increase in company use within the private client sector, with options like issuing multiple share classes to facilitate tax-effective dividend payments being explored. However, the Australian Taxation Office (ATO) has indicated a cautious stance and reserved comment on enforcement until the legislation is finalized, emphasizing the possibility of applying general anti-avoidance rules in certain cases.

Tax partner Mark Molesworth from BDO advised families and businesses to avoid premature restructuring, recommending a measured approach while awaiting clarity on legislative details. He highlighted that new investments should be carefully structured considering the potential reform’s full implications.

The evolving political landscape, including the uncertain outcome of the 2028 federal election and the shifting prospects of major parties, adds another layer of unpredictability. Should there be a change in government, there is a possibility that the proposed trust rules could be rolled back, leading to further restructuring activity and additional state revenue from stamp duties.

With the detailed design of the tax measures still under development and various stakeholders awaiting clarity, many advisers agree that maintaining current trust structures remains the prudent path until the legislation is enacted and more definitive guidance is available.