From 1 July 2028, income that flows through a discretionary trust will be subject to a minimum 30 per cent tax. This is the most significant change to how trusts are taxed in nearly three decades, and it sits squarely in the middle of how most construction business owners have structured their finances.
If your business, your investment assets, or your property holdings sit inside a discretionary trust, this is the Budget measure that deserves the most attention.
This article explains what the change actually means, who it affects, what is excluded, and what the planning window looks like. The legislation still needs to pass through Parliament, so some of the finer detail will come through over the next 12 months. However, the direction is clear and planning can start now.
A discretionary trust is a structure where a trustee decides each year which family members receive income from the trust, and how much. The traditional tax planning benefit is that income can be directed to family members on lower tax rates, which reduces the overall amount of tax the family pays.
Under the new rules, the trust itself must pay a 30 per cent tax on all of its income before any distributions go out. Beneficiaries receive a credit for that tax, which they can offset against their own tax bill.
If you distribute trust income to a family member on a low income, the credit they receive will be higher than what they actually owe in tax. The excess credit is lost. It cannot be refunded. The tax advantage of sending income to lower-rate beneficiaries disappears.
For anyone who has been using their trust to distribute income to a spouse, adult children, or retired parents on lower tax rates, the benefit of that strategy is largely gone from 1 July 2028.
Worked Example
Say your trust earns $200,000 and you have been distributing $100,000 to your spouse and $100,000 to an adult child, both on lower tax rates.
Under the current rules, the total family tax bill on that income is relatively low because both beneficiaries pay at their own marginal rates.
Under the new rules, the trust pays 30 per cent tax on the full $200,000 first. Each beneficiary gets a credit for their share of that tax. But if their personal tax rate is lower than 30 per cent, the difference is lost. The family ends up paying significantly more tax overall, purely because the beneficiaries sit below the 30 per cent rate.
The Government has carved out several categories of trust and several categories of income. The exclusions matter, because they determine whether your structure is genuinely caught.
That last point is important. If you already have a testamentary trust in place as part of your estate plan, and the assets were held in that trust before the Budget announcement date, those assets are outside the new tax. Assets added to that trust after 12 May 2026 will be impacted by these changes.
Discretionary trusts are the most common structure across business owners, used for three reasons: asset protection, succession planning, and distributing business income tax-effectively.
The trust still separates your investment assets and surplus business cash from the operating entity. For a builder or contractor exposed to defect liability and contractual disputes, that protection remains valuable and is not affected by this measure.
The ability to pass wealth between generations through the trust structure, without triggering capital gains or stamp duty at every step, continues to work as before.
If you have been distributing trust income to family members on lower tax rates to reduce the overall family tax bill, that strategy loses most of its value from 1 July 2028. A distribution to a family member on 19 per cent now carries a 30 per cent floor. That is the change.
The Government has created a three-year restructure window from 1 July 2027 to 30 June 2030. During this period, you can move assets out of a discretionary trust and into a different structure, such as a company, without triggering the capital gains tax that would normally come with that change.
This is the planning opportunity. The question for each client is whether staying in the trust and accepting the 30 per cent floor, or restructuring into something better suited to where the family group is now, produces a better outcome. The answer depends on who the trust is distributing to, what assets it holds, and what the succession plan looks like.
The 1 July 2028 start date sounds like a long way off, but the rollover relief opens on 1 July 2027. The planning conversation needs to start well before that, because restructuring a long-standing trust is not a quick exercise. Three decisions to work through with your accountant.
Many trusts in the construction sector were set up a decade or more ago. If the people the trust distributes to are now all on the 30 per cent marginal rate or above, the minimum tax may make very little difference, and no restructure is needed. The first step is an honest assessment of what your trust is currently doing.
For trusts where the change does bite, the next question is whether a company structure, or another arrangement, produces a better after-tax outcome than accepting the 30 per cent floor. The modelling is doable and worth doing properly.
If a restructure is on the table, use the rollover window as an opportunity to review how assets are held across the whole family group, not just the business. It is a structural opportunity that should not be wasted on a like-for-like swap.
The minimum tax does not require you to wind up your trust.
What it does is reset the tax economics of income flowing through a discretionary trust. Whether that justifies restructuring is a question that depends entirely on your circumstances.
The logical first step is a structural review of your current trust arrangements with your accountant.
That review should cover:
We are working through the detail with our construction clients now. If you would like to talk through what the trust changes mean for your structure, get in touch with the team.
This article is part of our 2026-27 Federal Budget series for construction business owners. See also our master article on the Budget, and our deep-dives on the CGT reforms and negative gearing changes.
