Discretionary trust tax reform has opened a new front in Australia’s housing supply fight, with property industry leaders warning that the proposed 30 per cent minimum tax could make some developments harder to finance and more expensive to deliver.
The Property Council of Australia has urged the federal government to abandon the proposal, arguing that it could hit family-owned and mid-tier developers that commonly use discretionary trusts to manage projects.
That is the industry’s case. It is not yet proof that housing construction will fall.
But the concern deserves more scrutiny than the usual argument over whether trusts are legitimate business structures or tax-planning vehicles. The real question is whether changing their tax treatment alters project economics before Australia has repaired its already-fragile housing pipeline.
The tax change developers are fighting
From 1 July 2028, the government proposes to impose a minimum tax of 30 per cent on the taxable income of discretionary trusts.
Under the proposed model, the trustee would pay the tax. Individual beneficiaries would generally receive non-refundable credits that could offset their current-year income tax liabilities.
The government says the reform will make the system fairer by reducing opportunities to distribute trust income to beneficiaries facing lower marginal tax rates. It points to Treasury analysis showing that most private trust wealth is concentrated among Australia’s wealthiest households.
Some structures and income would be excluded. These include fixed and widely held trusts, complying superannuation funds, charitable trusts, deceased estates, special disability trusts and certain primary production income.
Expanded rollover relief is also planned for three years from 1 July 2027, allowing some businesses to move out of discretionary trusts.
The broad policy is settled at Budget level. The implementation details are not.
Treasury’s consultation remains focused on collection, rollover relief, charity distributions, excess franking credits and the treatment of unpaid trust entitlements. Submissions close on 31 July 2026.
In plain English
The proposal does not ban discretionary trusts. It attempts to establish a 30 per cent tax floor on their taxable income. The dispute is about whether that tax floor will affect business cashflow, financing and investment decisions in ways the government has underestimated.
Why development structures are different
The Property Council’s warning centres on developers that use separate trusts across projects or stages of a development.
A housing project can take five to ten years to move from acquiring land to completing and selling the final dwelling. During that period, the developer must manage planning risk, construction costs, presales, finance conditions and potential disputes.
Separate legal structures can help contain those risks. If one project fails, the damage may be prevented from spreading across an entire development business.
Trust structures may also be required by financiers, equity partners or joint-venture arrangements. That does not mean every trust distribution delivers a public benefit. It does mean that a structure used for tax planning can simultaneously perform legitimate commercial functions.
The government says legitimate uses of trusts will remain available. Technically, that is correct.
The issue is whether those structures will remain commercially workable after the tax treatment changes.
Discretionary trust tax could hit projects twice
The first potential cost is straightforward. If a project’s after-tax cashflow falls, the developer has less capacity to fund the next acquisition, absorb a construction overrun or satisfy a lender’s requirements.
The second cost is less visible.
Businesses that decide to restructure may face legal, accounting and refinancing expenses. Moving land or other assets between entities can also create state tax consequences, including stamp duty, depending on the transaction and jurisdiction.
Federal rollover relief may defer or remove some federal tax liabilities. It does not automatically erase state duties, rewrite finance agreements or preserve every accumulated tax loss.
This is the point that matters for housing supply. A reform does not need to make every project unprofitable to reduce construction. It only needs to push marginal projects below a lender’s or investor’s required return.
Australian Property Review recently examined the same weak link in Australian Housing Crisis: Banks Fund Mortgages, Not Homes. Development lending already carries substantially more risk than lending against completed homes.
Add higher tax leakage, restructuring costs or uncertainty, and some projects may require higher sale prices or more equity before construction begins.
Others may simply wait.
The government has a credible fairness argument
The property industry’s concerns should not be treated as the entire economic case.
Discretionary trusts can allow families to allocate income across beneficiaries. That flexibility can produce lower tax outcomes than those available to workers earning the same amount through wages.
The government says families using discretionary trusts paid an average tax rate about four percentage points lower than comparable families without one in 2022–23. Treasury also says more than 90 per cent of private trust wealth is held by the wealthiest 10 per cent of households.
Those figures support a legitimate tax-equity argument.
The uncomfortable part is that fairness and housing supply are not separate policy problems. The government must show that it can close a perceived tax advantage without creating avoidable barriers for businesses producing new homes.
A blanket exemption for property developers would be difficult to defend. It could reward structures that have little connection to new construction and create another boundary for advisers to test.
A better-designed response may require targeted treatment for genuine development activity, workable transition rules and coordination with the states over duty consequences.
That would be more complicated than either side’s preferred headline. It may also be closer to the actual problem.
Who ultimately carries the cost?
Developers will not necessarily absorb the full impact of a higher tax burden.
Where buyer demand is strong and new supply is constrained, part of the cost may flow into higher prices. Where buyers cannot pay more, the developer may seek cheaper land, reduce the scope of the project or delay construction.
Contractors and consultants can also feel the second-order effects if fewer projects reach financial close. State governments may collect less duty from new transactions if development activity slows, even while collecting duty from some restructures.
The outcome will vary by project.
Large developers with diversified balance sheets may have more options. Smaller and mid-tier operators can be more exposed because they often rely on project-specific finance and must recycle capital from one development into the next.
That is why the debate cannot be reduced to whether developers should pay more tax. The useful test is whether the reform changes the number of viable dwellings that reach completion.
What has changed and what has not
The proposed start date remains 1 July 2028. Consultation is underway, and important implementation details can still change.
There is no evidence yet that the proposal has caused a measurable fall in national housing construction. It is too early, and the policy is not operating.
The underlying housing pressures have not changed either. Planning delays, expensive finance, labour shortages, infrastructure constraints and high construction costs remain major obstacles.
Latest ABS data has already shown how uneven the pipeline can be. Australian Property Review’s analysis of dwelling approvals and housing supply explains why an approval is not the same as a completed home.
The trust tax would be one more variable in that feasibility equation, not the sole cause of Australia’s shortage.
What could change the outcome
Three scenarios matter from here.
The base case is that the government retains the 30 per cent tax floor but adjusts implementation rules for selected structures, transactions or income types.
A better outcome for housing supply would involve transition relief that addresses both federal tax and practical restructuring costs, supported by clear rules for genuine development businesses.
The downside is a complex system of narrow exemptions that increases compliance costs without removing uncertainty. In that scenario, businesses may start restructuring or withholding investment well before 2028.
The government could strengthen its case by publishing modelling of the expected effect on development feasibility, business restructuring and housing completions. Industry groups should also provide evidence beyond individual examples, including how many active projects rely on discretionary trusts and what proportion would become unviable.
Without that evidence, both sides risk arguing from assumptions.
The practical take
Property investors should not assume this is only a developer issue.
If fewer projects proceed, the effects can flow into new-home prices, rental supply and competition for established dwellings. That transmission would take time and would differ sharply between markets.
Anyone holding property or a development business through a discretionary trust should avoid restructuring solely in response to a media release. The final legislation, state duty position, finance agreements and reasons for using the trust all matter.
Australian Property Review’s earlier analysis, Trust Tax Changes Put Property Investors on Notice, explains why unwinding a structure too early can create costs that are difficult to reverse.
Start with a written assessment from a licensed tax adviser covering the proposed 2028 position, restructuring expenses, potential stamp duty, finance conditions and the consequences of doing nothing.
The policy may still change. The cost of an uninformed decision may not.
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