How trusts have transformed in Australia over the years

Trusts have evolved from flexible wealth and asset-protection structures into arrangements requiring far greater governance and oversight. This article looks at the next major shift, including the proposed 30% minimum tax, and what trustees and business owners should be considering now.

Trusts have long been a cornerstone commercial activity in Australia. Used across industries, family investment structures, they provide a mechanism for asset protection, segregation of funds and distribution flexibility.

Discretionary trusts, in the modern sense, were first developed in English equity law, with their origins tracing back to the medieval "use" (the predecessor of the trust) between the 12th and 15th centuries. Trust law was imported into Australia from England when the Australian colonies adopted English common law and equity.

However, the modern discretionary trust, where the trustee has discretion to decide which beneficiaries receive income and capital and in what amounts, did not become common in Australia until the mid-20th century with the major growth occurring from the 1970s onward, accelerating significantly during the 1980s, 1990s and 2000s.

The trust structure appears to provide the perfect balance as intended by the English, that is to allow “trustees” to monitor, administer and protect the assets “trust assets” on behalf of their trust owners “beneficiaries”.  In some cases, the trustees and the beneficiaries were the same people and therefore the major benefits were to protect against potential creditors and provide the taxation benefited of discretionary distribution.

They were almost too good to be true and consistently drew the attention of tax regulators and governments of all persuasion (depending on the fiscal positions).

The result is over the past 30 years, the management of trust structures in Australia has become progressively more complex. What was once often viewed as a flexible vehicle for asset protection, succession planning and income distribution now sits within a much tighter framework of tax integrity rules, reporting obligations and regulatory oversight. Family trust elections, trust streaming rules, Division 7A, section 100A, modernised ATO reporting and expanded AML/CTF obligations have each added another layer of consideration for trustees and their advisers.

The Federal Budget changes to discretionary trusts are therefore not a standalone development; they are the latest step in a longer shift toward greater transparency, stronger governance and reduced flexibility.

The 2026-2027 Federal Budget: A significant shift in trust taxation

The most notable recent development came with the 2026–27 Federal Budget, which introduced proposed changes that could materially alter how discretionary trusts are taxed.

At the centre of the announcement is 30% minimum tax on discretionary trust income, applying from 1 July 2028.

This represents a fundamental shift from the traditional “flow through” taxation model, where income is distributed to beneficiaries and taxed at their individual rates. From the 2029 financial year, trustees themselves would pay a baseline level of tax before distributions are made.

The stated objective off the back of the Australian Government’s 2026-2027 Federal Budget release is to improve fairness in the tax system and reduce income splitting practices.

However, the practical implications are significant:

• Reduced flexibility in how income is distributed
• Potential loss of tax efficiency for certain structures
• Increased administrative requirements for trustees (calculation, reporting and credit allocation)

The purported relief from the above, as release by the federal government, includes an“Excluded Election Trust” (EET) regime. Under this proposal, an existing discretionary trust can elect to avoid the 30% minimum tax by nominating specified beneficiaries and fixed entitlement percentages to both income and capital.

If the trust complies with these nominated proportions on an ongoing basis, it can remain outside the minimum tax regime without needing to restructure into a fixed trust or company. However, the election effectively limits future distribution flexibility, as the trustee must distribute in accordance with the nominated beneficiary percentages to maintain the exemption.  This is some ways completed negates the benefits of the trust arrangement.

How we advise our clients to respond to the changing landscape of trusts

In this environment, our business advisory team encourage a more deliberate and forward-looking approach to managing trusts.

This typically involves:

• Revisiting existing structures
  Assess whether current trust arrangements still align with the original purpose and remain effective under emerging rules.
• Strengthening governance and oversight
  Ensure trustees understand their obligations and that processes are in place to support accurate, timely reporting.
• Scenario planning ahead of legislative change
  Particularly in light of the Federal Budget proposals, modelling different outcomes can help avoid reactive decisions later.
• Considering alternatives where appropriate
  In some cases, other structures may offer greater simplicity or certainty as regulatory settings evolve.

Every structure is different, it’s worth talking it through with your local business adviser.

Potential reasons trust are still valuable

The increasing regulation of discretionary trusts raises an important question about their future role and value. For many years, trusts have been a highly effective vehicle for both tax planning and wealth management.

While the proposed 30% minimum tax regime and associated election mechanisms have undoubtedly reduced some of the traditional tax advantages available to trust structures, it would be premature to conclude that trusts have lost their relevance.

Rather, taxpayers and advisers will need to undertake a more careful cost-benefit analysis, weighing the compliance burden and reduced tax flexibility against the broader commercial and family benefits that trusts continue to provide.

Looking forward, trusts remain a legitimate and valuable tool for asset protection, succession planning, family wealth preservation and the orderly transfer of assets between generations. From a tax perspective, the interaction between the proposed 30% withholding tax and the exemption election regime appears somewhat clumsy and may create additional complexity for trustees.

Nevertheless, with careful planning and thoughtful structuring, many families and business owners may be able to restore a significant portion of the flexibility and outcomes that have been diminished by the reforms. The tax benefits may no longer be as compelling as they once were, but the broader strategic advantages of trusts remain firmly intact.

A shift in mindset

Ultimately, the message from our business advisers and tax specialists is not that trusts are becoming obsolete, but that they are becoming more deliberate tools, requiring clearer purpose, stronger governance and more active management. For many of our clients, the opportunity lies in stepping back and reassessing how trust structures fit within their broader financial and business strategy, rather than treating them as a set-and-forget solution.