The trust tax is on its way, and now there's a potential way to avoid getting hit with a stamp duty bill too. If you're a small business owner who operates through a discretionary trust, the federal government has been trying to fix a problem it inadvertently created - and on Thursday, it proposed a solution.
Treasury released draft legislation for the new 30% minimum tax on discretionary trusts, first announced in the May budget. Alongside it came something businesses and their advisers had been waiting on: a way to avoid a second, unrelated cost that the tax had accidentally set in motion.
The tax, and the problem it created
From 1 July 2028, income earned through a discretionary trust will be taxed at a minimum rate of 30% at the trustee level, closer to the rate paid by an average worker. The government's logic is that discretionary trusts have long let owners split income between family members and companies to reduce the overall tax paid, and the new rate is meant to close that gap. Treasury estimates fewer than 10% of Australia's 2.7 million active small businesses will be affected in any given year, though other figures put the number of trusts in the frame at closer to 350,000 to 400,000.
For a business owner who didn't want to pay the new rate, the obvious move was to restructure out of the discretionary trust altogether, into a company or a fixed trust that pays out income in set proportions rather than at the trustee's discretion. The budget promised "rollover relief" to soften that move, covering the federal capital gains tax that a restructure would normally trigger.
What the rollover relief didn't cover was stamp duty. Stamp duty is a state and territory tax charged when property, including many financial assets and business interests, changes hands, and a genuine restructure usually counts as exactly that kind of change. Federal rollover relief has never extended to state stamp duty, and state treasurers gave the idea of waiving it a cool reception when the government raised it during consultation.
The Council of Small Business Organisations Australia, which represents small business owners nationally, had been blunt about what this left on the table. COSBOA chief executive Skye Cappuccio said the situation left many owners facing "an impossible choice between a higher tax burden or a costly restructure," warning that rollover relief would not cover the accounting, legal and stamp duty costs a genuine restructure required.
The workaround, explained
Thursday's draft legislation offers a different route entirely. Rather than converting a discretionary trust into a fixed trust or a company, which is what triggers a stamp duty event in most states, a trustee can instead elect to keep their existing trust in place and commit to making fixed distributions to their existing, pre-nominated beneficiaries.
In effect, the trust stays a discretionary trust in name and structure. What changes is that the trustee gives up the discretion to vary who gets what, in exchange for exemption from the new minimum tax, for as long as the fixed arrangement holds. Because no property or asset actually changes hands or changes ownership structure, the election is not expected to trigger a stamp duty event in most states.
Treasury's own release describes it as an alternative to rollover relief rather than a replacement for it: businesses that genuinely want to convert to a company or a different trust structure can still use rollover relief for three years from 1 July 2027, while businesses that are happy to keep their existing structure but fix their distributions can sidestep the restructure question, and the stamp duty problem, entirely.
Who's already exempt
The draft legislation also confirms and expands a list of trust types that were never going to be caught by the minimum tax in the first place: charitable trusts, special disability trusts, superannuation funds, deceased estates, genuine testamentary trusts, and income from primary production or relating to vulnerable minors. Widely held trusts, managed investment trusts, bare trusts and employee share trusts are also carved out under a new definition of what counts as a "fixed" trust.
One gap flagged during consultation has also been closed. Distributions from trusts to registered charities and deductible gift recipients will be fully exempt from the new tax, and distributions to other tax-exempt entities such as sporting clubs will be exempt up to a cap still being finalised. Trustees will also be able to claim refunds on franking credits tied to income that's already been taxed under the new minimum rate.
Treasurer Jim Chalmers framed the release around the government's broader small business tax record rather than the trust tax specifically. "We're big supporters of small business and the government's tax reform package includes over $3.8 billion in new measures that lower taxes on business to support investment and growth," he said in a statement, pointing to the permanent $20,000 instant asset write-off and the reintroduction of loss carry-back that passed parliament in August.
Not everyone is convinced
Australian Chamber of Commerce and Industry chief executive Andrew McKellar was more sceptical about how many businesses the workaround would actually help. He said small business owners often chose a discretionary trust precisely because their income varied year to year, and giving up that flexibility to lock in fixed distributions defeats much of the point of the structure for many of them.
Shadow treasurer Tim Wilson raised a related concern about timing and cost rather than mechanics, arguing that lumping small businesses with fresh bills for financial and legal advice, valuations and stamp duty was poorly timed given elevated business insolvency levels.
The practical read for a business owner using a discretionary trust: this workaround is worth understanding, but it isn't automatically a better deal than restructuring, and it isn't free of trade-offs either. Locking in fixed distributions gives up the flexibility that's often the whole reason a discretionary trust was chosen, particularly for a business with income that swings from year to year. Whether the fixed-distribution election, the rollover-relief restructure, or simply accepting the new tax rate makes more sense will depend on your specific numbers, and that's a conversation worth having with an accountant well before the tax starts in mid-2028, not after.
The draft legislation is open for consultation until 18 September 2026, a shorter window than earlier stages of the process, and Treasury has said it wants stakeholders with technical questions to get in touch early rather than wait until submissions close. Further tranches of legislation covering administrative and integrity details are still to come.
This article is based on Treasury's official media release and public consultation documents, and on-the-record comments from COSBOA, ACCI and the federal opposition. It is general information, not tax or financial advice; talk to your accountant about how this applies to your business.