Since the Federal Budget announced a proposed 30% minimum tax on discretionary trust distributions, my phone hasn't stopped ringing. The tax is currently in consultation, isn't yet law, and is due to start on 1 July 2028. Most callers ask the same thing: should I still buy property in a trust?
Many expect me to say no. For a lot of people my answer is still yes. The reason goes back to why discretionary trusts exist at all.
Trusts were never mainly about tax
In recent decades discretionary trusts have been sold mostly as a way to split income. That was never their main purpose. They were built to protect assets.
A beneficiary of a discretionary trust has no fixed right to its income or capital. They only have a hope of receiving something, at the trustee's discretion. So if a beneficiary is sued, goes bankrupt or ends up in a commercial dispute, the trust's assets are generally out of their creditors' reach. For business owners, company directors, professionals, builders and anyone who gives personal guarantees, that protection is the real point of the trust.
The proposed tax doesn't change any of this.
Who actually pays more?
Under the proposal, trust distributions are taxed at a minimum of 30%. Beneficiaries get a credit for that tax, but the credit is not refundable.
So the extra cost only falls on beneficiaries whose personal tax rate is below 30%. In practice that usually means family members on low or no income, who used to receive distributions taxed at little or nothing.
Now look at the typical person who asks me about holding property in a trust. They already earn a good salary, have significant passive income, or both. Once the trust income is added, they are already paying 30% or more. For them the minimum tax changes little or nothing.
What about capital gains?
The Budget also changed CGT, and those changes are already law. From 1 July 2027, the 50% CGT discount is replaced with indexation and a 30% minimum tax on capital gains. But these rules apply the same way whether you hold property personally or through a trust. On capital growth, the trust puts you at no disadvantage.
Think of it as an insurance premium
Even where the new rules do cost you something, look at what you get for it.
Suppose someone offered you a policy that put your assets beyond the reach of creditors, and the premium was a few percent of your annual income. That premium is really the extra tax, or the lost benefit of streaming to a low-income family member. Most people with real exposure to risk would take that deal.
And the proposed trust tax is a cost on the income the trust distributes, not a charge on the asset. The property itself, usually the thing you most want protected, stays inside the structure.
The bottom line
Discretionary trusts aren't dead. The proposed minimum tax weakens the income-splitting case for them. It does not weaken the asset protection case, and for many clients that was always the stronger reason to use one.
Whether a trust suits you depends on your income, your exposure to risk, your family circumstances and your long-term plans for the asset. If you're weighing up how to hold your next property, or want to know whether your existing structure still makes sense, speak with us before you act.
This article is general information only and is not legal or tax advice. The minimum tax on trust distributions is a proposal only and is not yet law; its details may change. The CGT changes referred to have been legislated.