Treasury is consulting on a 30% minimum tax for discretionary trusts, a structure used by roughly 350,000 Australian small businesses. Around 210,000 would pay more tax if it proceeds. Property investors make up a chunk of that number, given family trusts have been the default structure for holding rental portfolios, particularly when multiple properties or intergenerational planning are in play.
The Council of Small Business Organisations Australia estimates restructuring costs between $15,000 and $50,000 per business, putting the total bill at $3 billion to $10 billion across affected operators. For property investors who have held assets in a trust for decades, that’s not pocket change. The question is whether the integrity gain justifies forcing a quarter-million restructures, or whether this is a blunt tool aimed at a narrow problem.
How the proposal works
Discretionary trusts let income be distributed to beneficiaries at different marginal tax rates. The proposal would impose a flat 30% minimum tax on trust income before distributions, regardless of who receives it or at what rate they would normally pay. Treasury’s rationale is alignment: bringing trust income closer to the effective rate paid by PAYG employees and company profits.
The catch is that many family members working in small businesses, including property investors managing their own portfolios, don’t earn anywhere near the $200,000 salary that corresponds to a 30% effective rate. The measure treats all trust income the same, whether it’s going to a high earner exploiting the structure or a spouse on a modest income doing legitimate work.
Who gets caught and why
Property investors using trusts for asset protection, succession planning or splitting income across family members are in scope. The structure has been legal and common for decades. It’s particularly prevalent among investors with multiple properties, SMSFs holding property through related entities, or portfolios passed between generations.
Restructuring means legal fees, stamp duty in some states, potential capital gains events, and the administrative burden of unwinding decades of setup. For a portfolio worth $2 million held in a trust since the 1990s, the bill could easily hit $30,000 to $50,000 before you account for disruption to existing loan structures or tax advice.
The government has not released modelling on how many trusts are actually engaged in the targeted tax minimisation behaviour versus how many are using the structure for legitimate commercial purposes. Without that split, it’s hard to tell whether 210,000 restructures is proportionate to the integrity gap being closed.
The alternative paths
The Council of Small Business Organisations Australia has proposed three options short of a blanket minimum tax. First, strengthen existing integrity measures rather than introduce a new layer. Second, grandfather small businesses with aggregated turnover below $10 million. Third, use an annual distribution pattern test to flag aggressive income splitting without forcing everyone to restructure.
Each carries trade-offs. Grandfathering protects existing arrangements but doesn’t close the loophole going forward. A pattern test adds compliance cost and subjectivity. Strengthening existing rules assumes the current framework can be tightened without creating new gaps.
The broader question is whether this accelerates the shift away from family trusts in property investment. Investor activity has shown tentative recovery after recent tax reform pressures, and another structural cost layered on top could push more capital toward simpler structures like companies or direct personal ownership, both of which come with their own limitations on asset protection and succession.
What could derail or reshape this
Treasury’s consultation closes soon, and the government has not committed to a timeline for legislation. If small business groups can demonstrate that the compliance cost outweighs the revenue gain, or that existing measures can be tightened at lower cost, the proposal could be scaled back or replaced with a targeted rule.
The other variable is whether the measure survives political negotiation. A $10 billion restructure bill concentrated among small business owners and property investors creates a vocal constituency. If the integrity gap turns out to be smaller than assumed, or concentrated in a subset of high-income trusts, a narrower measure becomes easier to defend.
The practical read for property investors
If you hold property in a discretionary trust, the first step is understanding whether you’d be caught. If your trust distributes income that would otherwise be taxed below 30%, the measure increases your tax bill. If distributions already land in the 37% or 45% brackets, you’re unaffected on the income side but still face restructuring costs if you want to move out of the structure.
Second, model the restructuring cost against the annual tax increase. If the minimum tax adds $8,000 a year to your bill and restructuring costs $40,000, you break even in five years. If you’re planning to hold for another decade or more, restructuring might make sense. If you’re closer to selling or winding down, it probably doesn’t.
Third, watch for transitional provisions. The government may offer grandfathering, extended timelines, or relief for smaller operators. Don’t restructure preemptively until the final design is clear.
Fourth, if you’re setting up a new structure now, consider whether a trust still makes sense given the direction of travel. The proposal signals that discretionary trusts are under scrutiny, and even if this version doesn’t proceed, future tightening is likely.
Bottom line
A 30% minimum tax on discretionary trusts would force 210,000 small businesses to choose between paying more tax or spending $15,000 to $50,000 to restructure. Property investors who have used family trusts for decades are in scope. The measure is blunt, the modelling is unreleased, and the integrity gap it’s meant to close hasn’t been quantified separately from legitimate use cases.
If you hold property in a trust, model the annual cost against restructuring now, but wait for final design before acting. If you’re setting up a new portfolio, assume trusts will face higher scrutiny and costs going forward, and weigh that against the asset protection and succession benefits they still offer.
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General info, not financial advice.
