4 min read
QUICK SUMMARY
- THE BACKDOWN: The 30% minimum trust tax is still proposed from 1 July 2028.
- THE ELECTION: Existing trusts may lock in fixed distributions to nominated beneficiaries.
- THE DEADLINE: Consultation on the draft legislation closes on 18 September 2026.
- THE FINANCE ANGLE: Trust changes can affect borrowing, guarantees, security and lender documents.
- THE NEXT STEP: Model PAY, LOCK IN and RESTRUCTURE before making a call.
WHAT CHANGED THIS WEEK
On 3 September 2026, the Government released draft legislation for the proposed 30% minimum tax on discretionary trusts, scheduled to start from 1 July 2028. That puts the issue back on the desk for family businesses that use trusts to hold trading operations, property or investments.
This is the third round of changes after backlash from small business groups, family enterprises and advisers. The core decision has not changed: PAY the tax, LOCK IN fixed distributions through a one-off election, or RESTRUCTURE into a different entity.
The draft includes exemptions for some trust types and charitable distributions, and Treasury says a sizeable share of small businesses may avoid extra tax or restructuring. You can read the AFR explainer on the trust tax changes and the SMH report on the stamp duty escape hatch.
YOUR THREE OPTIONS
PAY
Keeping the discretionary trust and paying the 30% minimum tax may suit owners who still need flexibility. It can make sense where the cost or risk of restructuring is worse than the extra tax.
LOCK IN
Making the one-off election may help an existing trust avoid the 30% minimum tax without moving assets into a new structure. The trade-off is losing distribution flexibility, with a real penalty risk if future distributions do not follow the locked pattern.
RESTRUCTURE
Restructuring may suit owners who want clearer ownership, cleaner succession planning or a structure better aligned with future growth. It can also trigger professional fees, valuation work, lender approvals and changes to how profits are extracted.
There is no universal winner. The right choice depends on your goals, risk appetite, family circumstances, asset ownership and expected business growth.
WHY THE ELECTION ISN’T FREE
The election may sound like the neat middle ground: keep the trust, avoid stamp duty and bypass the minimum tax. The catch is that you give up flexibility, and that flexibility is usually the whole point of a discretionary trust.
Family circumstances also change. A new child may enter the business, a relationship may end, or a beneficiary’s financial needs may shift, which can make fixed percentages feel very clunky very quickly.
That is why the election should be treated as a structural decision, not a quick tax fix. Your accountant and solicitor should review the trust deed, family arrangements and final legislation before anything is signed.
WHAT THIS MEANS FOR YOUR BORROWING
Trust structures are not just tax vehicles. They often own warehouses, offices, investment property, business assets and shares in trading entities.
Lenders assess the entity that owns the asset and the entity that borrows. If a family business moves from a discretionary trust to a fixed structure or company, the change may affect:
- Financial statements and how income is presented.
- Serviceability calculations and add-backs.
- Director, shareholder and beneficiary guarantees.
- The property or other assets offered as security.
- Existing loan conditions and lender consent requirements.
- How a new purchase, refinance or working capital facility is documented.
A restructure can interrupt finance mid-stream. If a lender has already assessed one borrowing entity and the structure changes, the deal may need to be reviewed, re-documented or reassessed.
That is why tax and finance advice should be coordinated before restructuring, not after. If your business is planning to buy or refinance a Perth industrial property, review the implications alongside your Commercial Property Loan strategy.
The same applies to business purchases, partner buyouts and succession transactions. A change in ownership or entity structure can affect Acquisition Finance and the way lenders assess trading history, guarantees and security.
RISKS AND TRANSPARENCY
The proposed changes are still draft legislation. Details may change after consultation, and the interaction between the new election, existing family trust elections and trust law may be difficult to navigate.
The potential benefits of each option also come with costs:
- PAY may mean higher tax and less cash available for reinvestment, while LOCK IN may remove flexibility and create a serious penalty risk if the distribution pattern is breached.
- RESTRUCTURE may involve professional fees, valuation costs, stamp duty, lender fees, operational disruption and changes to future borrowing capacity.
This article is general information only. It is not tax, legal or financial advice. Speak with your accountant and solicitor about the tax and legal position, and involve your finance broker before changing the entity that owns assets or holds debt.
WHAT TO DO BEFORE 18 SEPTEMBER
Use the consultation deadline as a planning prompt rather than a reason to panic.
A sensible step-by-step process is:
- Confirm whether your trust is discretionary and whether any exemptions may apply.
- Review what assets the trust owns, including property, investments and business interests.
- Model PAY, LOCK IN and RESTRUCTURE outcomes using realistic future income and capital gains.
- Discuss how each option affects family succession, personal circumstances and planned borrowing.
- Gather current trust deeds, entity statements, financial statements, loan documents and property details.
- Read the final consultation outcome before committing to a permanent election or restructure.
For businesses managing tight cash flow during this planning period, a review of Working Capital may also be worthwhile. Tax decisions should not accidentally leave a trading business short of the cash it needs to pay staff, suppliers and lenders.
TERMS TO KNOW
- Discretionary trust: A trust where the trustee generally has discretion over which eligible beneficiaries receive income or capital.
- Minimum tax: The proposed 30% tax floor applying to certain discretionary trust income from 1 July 2028.
- Fixed distribution: A predetermined entitlement or percentage of trust income or capital.
- Election: A one-off choice allowing an existing trust to nominate fixed beneficiaries and distribution proportions.
- Rollover relief: Tax relief that may defer or prevent an immediate capital gains tax event when eligible assets are transferred during a restructure.
- Revocation: The cancellation of an election if the trust stops following the required fixed distribution pattern.
THE BASELINE DIFFERENCE
A trust decision is rarely just a tax decision. It can affect your property, business operations, succession plans and ability to borrow.
At Baseline Finance, we provide jargon-free, transparent guidance and coordinate the lending process from application to settlement. Our role is to understand the wider picture, work alongside your professional advisers and help ensure your finance strategy supports your long-term goals.
CONTACT BASELINE FINANCE
Phone: 08 6108 3925
