Draft law puts a 30% tax floor under family trusts that hold property

In this article

Written by

Kooky

Builder of Shaka, the payment router that pays every agent their commission on closing date.

About Kooky and Shaka →

The Treasurer released exposure draft legislation on 3 September 2026 for a minimum tax on the income of discretionary trusts, with submissions due by 18 September. Law firms that have read the drafts, among them King & Wood Mallesons on 4 September and Sladen Legal on 7 September, put the rate at 30 per cent and the start date at 1 July 2028, with a three-year window for restructuring that opens a year earlier.

Discretionary trusts, usually called family trusts, are one of the common ways Queensland families hold an investment property. The draft does not single out property, but rent is trust income like any other, and the two ways out that the draft offers both run into State taxes on land. That is the part of the package a property owner needs to understand first.

Treasurer's media release, 3 September 2026; King & Wood Mallesons, 4 September 2026; Sladen Legal, 7 September 2026.

What the draft does

A discretionary trust lets a trustee decide each year which beneficiaries receive the trust's income. Each beneficiary pays tax on their share at their own rate, so income directed to an adult child at university or a spouse with little other income is taxed lightly. The measure, announced in the federal Budget in May, is aimed at that outcome.

Sladen Legal's summary describes the mechanism as a top-up and not a separate flat charge. Where trust income would otherwise be taxed at less than 30 per cent, the trustee pays the shortfall up to 30 per cent. Where the income is already taxed at 30 per cent or more, nothing further is payable. Where no other tax would be owed at all, the rate is 30 per cent.

An illustration shows the scale, using assumed figures. A trust earns $40,000 in net rent and distributes it to an adult beneficiary with no other income, who under today's rules would pay only a small amount of tax on it. Under the draft, the total tax on that $40,000 would be brought up to at least $12,000.

The Treasurer's release presents the measure as narrow in reach, saying fewer than 10 per cent of Australia's 2.7 million active small businesses will be affected each year.

Trusts and income left outside

The release lists what the minimum tax will not touch. Charitable trusts, special disability trusts and superannuation funds are excluded. So are deceased estates and discretionary testamentary trusts, which matters to families whose property passes through a will. Primary production income is carved out, as is income relating to vulnerable minors, and distributions to registered charities and deductible gift recipients are not counted.

Fixed trusts are outside the regime by definition, since nobody exercises a discretion over who gets what. The draft writes a new definition of a fixed trust for this purpose, and the release says widely held trusts, managed investment trusts, bare trusts and employee share trusts are not caught.

For property owners, two inclusions deserve as much attention as the exclusions. Sladen notes that rental income is treated as ordinary trust income, subject to the minimum tax unless a specific exclusion applies. And a family unit trust is only safe if it meets the new fixed trust definition, which turns on whether it has discretionary elements that matter.

Two ways out for existing trusts

The draft gives a trustee who does not want to pay the minimum tax two alternatives. They cannot be combined.

The first alternative is an election. The Treasurer's release describes it as an option for a discretionary trust to make fixed distributions to pre-nominated beneficiaries. The law firms call the result an excluded election trust. Mallesons says the election applies from the 2028-29 income year and is available only to trusts in existence on 1 July 2028. Sladen adds the sting: a single distribution inconsistent with the nomination revokes the election automatically, and the trustee is then assessed at the top marginal rate plus the Medicare levy.

The second alternative is to leave the trust structure. The release promises expanded roll-over relief, available for three years from 1 July 2027, for taxpayers restructuring out of discretionary trusts. Sladen says the relief requires all relevant trust assets to go to a single transferee between 1 July 2027 and 30 June 2030, with continuity of beneficial ownership, and that missing the deadline defeats the relief entirely.

Where State taxes enter the picture

Roll-over relief is a federal concession. It defers capital gains tax on the transfer. It does nothing about what a State charges when land changes hands, and in Queensland that is transfer duty.

Moving a rental from the trustee of a family trust to a company is a transfer of dutiable property. The Queensland Revenue Office's scale applies standard rates to investment property, and its own example puts duty on an $850,000 investment property at $31,275. No home concession is available to a company. A family that restructured to avoid a 30 per cent floor on perhaps $40,000 of rent a year would pay most of a year's rent to the State to do it.

The federal government has recognised the point. The Treasurer's release says the election route lets a trust qualify without restructuring costs or expected stamp duties, and Mallesons records that the election was proposed in response to concerns that, for many discretionary trusts, a roll-over into a fixed trust or a company could incur significant State and Territory duties.

Whether the election itself is free of duty is less certain than that sentence suggests. Sladen observes that the drafts do not address the State duty or land tax consequences of the measures. Those taxes belong to the States, each revenue office applies its own Act, and a federal explanatory document cannot bind any of them.

Land tax adds a quieter consideration. Queensland taxes land held by a trustee from a total taxable value of $350,000, against $600,000 for an individual, and companies sit on the same lower threshold as trustees. A move from trust to company therefore changes nothing on the land tax bill, while a move into individual names could lower it but would lose whatever the trust was set up to achieve.

The property questions still open

Sladen's reading of the drafts is that several matters have been left for later legislation. Collection mechanisms, notices to beneficiaries, pay-as-you-go instalments and the continuity rules for trusts without a family trust election are all on that list, and Mallesons makes the same point about collection, notification and reporting.

Capital gains are the largest gap for anyone holding property. A rental's income is modest beside the gain on its sale, and how the trust minimum tax will sit with the capital gains changes that begin on 1 July 2027, including the separate 30 per cent minimum tax on gains and the replacement of the discount by indexation, is among the interactions the firms say are deferred.

That leaves trustees with an awkward sequence. The roll-over window opens on 1 July 2027. The election must be made for the 2028-29 income year. Both decisions fall due before the full set of rules is in print.

Who this reaches in Queensland

The people affected are not only the wealthy. A discretionary trust with a corporate trustee is a common choice for small business owners and professionals who want to keep an investment separate from business risk, and many Queensland rentals bought over the past two decades sit in one.

A trust holding a negatively geared property has little income to split in the first place: when deductions exceed rent there is nothing for a minimum tax to apply to. The measure bites on trusts whose properties are paid down and producing a surplus, and on trusts that also hold shares or business income.

For accountants, the draft creates a review of every trust on the books before mid-2027. For solicitors, it raises the question of whether trust deeds allow the fixed nominations the election demands. For property managers and agents, the visible effect, if there is one, would be owners deciding whether to sell an asset out of a trust or hold it under new rules, and the drafts give no reason to expect a rush in either direction.

What happens next

Submissions close on 18 September 2026, fifteen days after the drafts appeared. Treasury will then settle a bill for introduction to Parliament, on a timetable the release does not give.

Three dates frame the period ahead, all taken from the release and the law firm summaries: 1 July 2027, when roll-over relief becomes available; 1 July 2028, when the minimum tax and the election begin; and 30 June 2030, when the restructuring window shuts. None of them is law yet. An exposure draft is a proposal, and the consultation exists because its authors expect it to change.

Nothing in the draft requires a trustee to act this year. What it does require, of anyone whose family trust owns Queensland land, is an early conversation with their adviser about which of the three positions fits, with the State duty figure on the table beside the federal one.

Kooky, from Shaka

Kooky edits Queensland Estate and builds Shaka, the payment router he made for Queensland property professionals. One payment comes in, and every agent, agency and party in the deal receives their signed share on closing date.

About Kooky and Shaka →