A welcome reversal or a ‘menu with two bad options’?
The Albanese government's revised discretionary trust tax plan has given family trusts a way to avoid a proposed 30% minimum tax rate – but the trade-off could reshape how thousands of broker-owned small businesses plan for succession.
The background
Under the original May 2026 budget proposal, trusts faced a blanket 30% minimum tax designed to stop wealthier beneficiaries from splitting income for tax purposes, a measure the federal government projected would raise approximately $4.5 billion annually by the end of the decade.
Following sustained pushback from small business groups, a new exposure draft now lets trusts elect into a "fixed distributions" arrangement, locking in a set payout pattern to individuals or bucket companies in exchange for avoiding the higher tax rate and a costly restructure.
For mortgage brokers, many of whom operate their own businesses through discretionary trust structures, the change lands close to home.
The Council of Small Business Organisations Australia (COSBOA) called the revised approach an improvement on the original proposal but says it remains fundamentally flawed, while broker voices in the industry warn the fixed-distribution election trades one problem for another.
The problem
Many small and family businesses use discretionary trusts specifically because they let trustees vary who gets paid out each year (including for tax planning, succession planning and changing family circumstances).
Forcing everyone into the new 30% minimum tax, or into a costly restructure, was seen as unfair to "mum and dad" businesses that never had ambitions of aggressive tax minimisation – they just used a trust structure for practical reasons.
What's changed
Under the new exposure draft, trusts now get a choice:
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Elect into 'fixed distributions': A trust can lock in, once, a set pattern of who gets paid what (individuals or "bucket companies," which are corporate entities trusts distribute profits to). If they do this, they avoid the new 30% minimum tax and don't have to restructure. Beneficiaries just pay tax at their normal personal or company rate.
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Don't elect, and restructure: Businesses can instead exit the trust structure altogether, but this can trigger state stamp duty and other legal/accounting costs.
The catch
Once a trust makes the fixed-distribution election, it's largely locked in. It can only change nominated beneficiaries if one dies or there's a family breakdown (divorce, etc.).
If a trustee breaches the election by distributing differently than agreed, they lose the benefit – and get hit with the top marginal tax rate plus the Medicare levy for that year, before reverting to the 30% regime in future years.
The election avoids the immediate high tax and restructuring costs, which is a genuine win for businesses with steady, predictable distribution patterns. But it strips away the flexibility that made discretionary trusts attractive for succession planning in the first place.
COSBOA's verdict
COSBOA says the revised approach is an improvement on the original May 2026 budget proposal but stops short of fixing what is a flawed policy overall.
COSBOA chief executive Skye Cappuccio (pictured, right) said the change reflects a fallback position the organisation had proposed to the government after opposing the original trust tax changes outright.
According to Cappuccio, businesses able to maintain consistent distribution patterns now have a pathway to keep operating through their existing trust arrangement without triggering the higher tax treatment – sparing many "mum-and-dad" businesses the restructuring costs, legal fees, and potential state stamp duty that would otherwise apply.
However, Cappuccio is concerned about some significant trade-offs.
Businesses that opt into the fixed-distribution election give up the flexibility to vary payouts year to year, which is particularly important for succession planning in family trusts.
Cappuccio also slammed the penalty structure: if a trust revokes its election, its taxable income for that year would be taxed at the top marginal rate plus the Medicare levy, rather than simply reverting to the 30% treatment.
Cappuccio described this consequence as disproportionate, arguing it fails to account for how family business circumstances change over time.
“This is unnecessarily punitive and does not reflect the realities of family businesses, which can change and evolve over time,” said Cappuccio. “We call on the Government to amend this approach before the legislation goes ahead. While the overall changes are a meaningful improvement, they don’t change our view that the broader policy is flawed.”
COSBOA is examining the exposure draft in detail and is consulting with members before the consultation period closes on 18 September.
A menu with two bad options
As small business owners themselves, the debate over trust taxes has a direct impact on mortgage brokers.
Joseph Daoud (pictured, left), founder of It’s Simple Finance and prime minister Anthony Albanese’s tennis court rival, chalked the partial scale-back up as another win for the Stop the Ambition Tax campaign.
But he doesn’t see the partial scale-back as a true backdown.
“It's a menu with two bad options,” he told MPA. “Lock in your family trust distributions forever, and the only way out is a funeral or a divorce. Or unwind the trust entirely and pay stamp duty for the privilege of leaving. Get it wrong once as a trustee and you cop the top marginal rate plus the Medicare levy. That's not a safety valve, that's a trapdoor.”
Many brokers in the industry are feeling the impact of the trust tax changes on their businesses
“Every broker I talk to is asking the same question: ‘do I need to blow up a structure I've spent years building?’ And their accountants are charging by the hour to answer it. Nobody grows a business in an environment where you're punished for changing your mind,” said Daoud.
While he welcomes the changes, he doesn’t believe they go far enough. “The Government has admitted the policy was wrong,” said Daoud. “Now it just needs to admit it a bit more.”
