If you are approaching retirement with investments in a family trust, the proposed trust tax changes deserve attention. Once your salary stops, trust income may help fund travel, everyday spending and support for adult children. The amount available after tax matters to those plans.

The government proposes a 30% minimum tax on certain discretionary trusts from 1 July 2028. Eligible trusts could instead commit to fixed distributions, with restrictions on future changes. The choice could affect both your retirement income and how family wealth passes to the next generation.

These measures remain proposals. This article reflects the September 2026 exposure draft, and the final legislation may differ.

What the proposed minimum tax would mean

A discretionary trust generally lets its trustee choose which eligible beneficiaries receive income and in what proportions, within the deed and tax rules. This flexibility can help families respond to changes in earnings and circumstances.

Under the proposed regime, the trustee would pay the minimum tax. Individual beneficiaries would generally receive a non-refundable offset for their share of that tax. Further tax could be payable, while unused offsets would not be refunded.

That matters if you expect your taxable income to fall after leaving work. Retirement projections should consider the cash available from trust distributions alongside super, pensions and personally held investments.

Company beneficiaries need separate attention. A company receiving distributions, sometimes called a “bucket company”, would not receive the minimum-tax offset. This could add another layer of tax, so your accountant should model the full path from trust income to personal spending.

For trust-held shares, franking credits on income within the regime would be used by the trustee, with any excess refundable to the trustee. This differs from the non-refundable individual offset. Ask how the proposed treatment would affect your dividend income in retirement.

Exclusions are proposed for several trust types and income categories, including complying super funds and qualifying testamentary trust income. However, holding units in an exempt investment fund would not, by itself, exempt your own discretionary trust.

Fixed distributions would be a long-term commitment

Eligible discretionary trusts existing on 1 July 2028 could elect in 2028–29 to nominate beneficiaries and fixed proportions of both income and capital. Meeting the requirements would exclude the trust from the minimum tax without a formal restructure.

This could reduce restructuring costs, but would require decisions about who should benefit for years to come. A proportion that suits you while working may be less useful when one partner retires earlier or an adult child needs support.

The draft permits limited changes following a nominated beneficiary’s death or a qualifying relationship breakdown. Retirement, family disagreements and changing involvement in a business would not generally allow allocations to be reset.

Revoking or losing the election could expose all the trust’s net income to tax at the top marginal rate plus Medicare levy for that year. The minimum tax would apply in later years.

Consider how fixed shares would fit your estate plans, future family needs and any business succession arrangements before committing.

Restructuring costs still need separate attention

Three years of income tax rollover relief are proposed from 1 July 2027 for eligible restructures out of discretionary trusts. This could defer specified tax consequences, including capital gains tax, subject to the rules.

Federal rollover relief does not automatically remove state or territory stamp duty. The proposed election is intended to avoid a formal restructure, but the duty position still needs to be checked for the relevant assets and jurisdiction.

Legal and accounting fees, finance arrangements and asset protection also matter. Compare these costs and consequences with the projected cash flow from retaining the current structure or making the election.

Questions to discuss with your advisers

Your accountant, financial adviser and, where needed, solicitor can work through the options together. Useful questions include:

• Which trust income and beneficiaries would be affected?
• How much after-tax income would each option provide for our retirement lifestyle?
• Would fixed allocations still suit us if retirement dates or family needs change?
• How would company beneficiaries, franking credits and restructuring costs affect the comparison?
• What should we prepare now, and which decisions should wait for the final rules?

Planning while the details develop

Gather your trust deed, tax returns and distribution records, together with your intended retirement date and spending plans. Include any expected business sale proceeds or plans to help children financially. These give your advisers a clearer basis for comparing the options as the rules develop.

If trust income forms part of your retirement plan, contact Lighthouse Financial Group. We can review how it fits your broader financial position and work with your accountant to assess the implications of the proposed changes.

Lighthouse Financial Group Pty Ltd, Authorised Representative 000287794 ABN 221 13 759 952 is a corporate authorised representative of Fortnum Private Wealth Ltd ABN 54 139 889 535 AFSL 357 306. The information contained within this article does not consider your personal circumstances and is of a general nature only. You should not act on it without first obtaining professional financial advice specific to your circumstances.

Frequently asked questions