Family trust tax planning after the proposed 30% minimum tax 

In this newsletter, we have created scenarios to understand family trust tax planning after the proposed 30% minimum tax in simple terms for anyone, including family groups and small business owners, who currently use or are considering using a discretionary trust as part of their tax and asset planning. We do not provide a definite solution. Instead, we identify the practical paths and decision points that may need to be considered before the proposed 30% minimum tax on discretionary trust income commences.

The key issue is not simply whether a trust is “good” or “bad”. The better question is whether the structure still matches the family’s real-life goals once income-splitting benefits are reduced.

The Rahman family and their growing retail business

Family background

Amir and Nadia Rahman are a married couple in their mid-40s. They live in suburban Melbourne and have two children:

Family member	Age	Current position
Amir	46	Works full-time in the family business
Nadia	44	Works part-time in the business and manages family finances
Sara	19	University student, helps casually during weekends
Adam	16	School student, not formally involved in the business

The family operates a small but growing retail business selling homewares and gift products. The business has one physical store and a developing online store.

The business is currently operated through the Rahman Family Trust, a discretionary trust. A corporate trustee acts as trustee. The trust has previously distributed income among Amir, Nadia and Sara depending on their taxable income positions each year.

The family also has a private company that has occasionally received trust distributions as a “bucket company” to retain profits for future business expansion.

Real-life goals

The family has several genuine goals. These goals are important because tax planning should start with commercial and family objectives, not just the lowest tax outcome.

Goal 1: Fund the children’s education

Sara is at university, and Adam is expected to start university in two years. Amir and Nadia want to help with university costs, transport, textbooks and possibly rent if the children study away from home.

Goal 2: Expand the business

The family wants to open a second store within three years. They estimate that they will need approximately $180,000 for lease costs, fit-out, inventory, marketing and working capital.

Goal 3: Protect the family home

Amir and Nadia are concerned about business risk. They want to keep the family home and personal assets as separate from trading risk as possible.

Goal 4: Keep cash available inside the business

The business has seasonal cash-flow pressure. December trading is strong, but January to March can be slow. The family wants to retain cash to manage stock, rent, wages and supplier payments.

Goal 5: Keep the structure simple enough to manage

The family does not want a structure that creates unnecessary compliance costs, complicated recordkeeping or confusion about who owns what.

Current tax planning approach

Historically, the trust has been used in three ways:

Planning feature	Current use
Family distributions	Income is distributed to family members on lower marginal tax rates where appropriate.
Bucket company	Some profits are distributed to a company to cap tax and retain funds.
Asset protection	Trading activities are separated from personal ownership.
Flexibility	The trustee can decide year by year who receives the income.
Succession planning	The trust structure provides flexibility for future family involvement.

This structure may have worked well under previous settings. However, the proposed 30% minimum tax changes the planning conversation.

The proposed change in simple terms

Under the proposed measure, in-scope discretionary trusts would be subject to a minimum tax rate of 30% on taxable income. Non-corporate beneficiaries may still include the income in their own tax returns and receive a non-refundable credit for tax paid by the trustee. However, corporate beneficiaries would not receive the same credit, weakening traditional bucket-company planning.

The practical result is that distributing income to family members at tax rates below 30% may no longer produce the same tax savings. Distributing income to a company may also become less attractive if it results in additional tax leakage or ineffective use of credit.

Scenario analysis

Assume the Rahman Family Trust has the following projected figures for the 2028–29 income year.

Item	Amount
Business revenue	$950,000
Operating expenses	$620,000
Commercial wages to staff	$150,000
Net business profit before family distributions	$180,000

Assume Amir receives a salary or drawings equivalent to $100,000 for working in the business. Nadia receives $40,000 for genuine part-time work. Sara receives $12,000 for genuine casual work during the year.

After those wages, the trust has $180,000 of taxable income to consider for distribution or retention planning.

Planning question 1: Is the trust still useful?

The first question is whether the discretionary trust still serves a non-tax purpose.

For the Rahman family, the trust may still have value because it supports family succession planning and helps separate business risk from personal assets. It also provides flexibility if the children become more involved later.

However, if the main historical reason for the trust was income splitting, the family may need to reconsider whether the trust remains worth the additional complexity.

Variable	Question for the family
Asset protection	Does the trust still reduce practical business risk?
Succession	Will the children become owners or managers in future?
Flexibility	Is annual distribution flexibility still valuable?
Cost	Are accounting and legal costs justified?
Tax benefit	Does the trust still produce a meaningful after-tax benefit?

The answer is not automatic. A trust may still be appropriate, but the reason for using it may shift from tax minimisation to governance, asset protection and family succession.

Planning question 2: Should family members be paid wages instead of receiving distributions?

One likely planning path is to distinguish genuine labour from passive entitlement.

Sara works weekends and during university breaks. Nadia manages bookkeeping, supplier payments and online customer enquiries. If they are genuinely working in the business, commercial wages may be more appropriate than passive year-end distributions.

Person	Role	Planning issue
Nadia	Part-time administration and finance	Pay should reflect real duties and market value
Sara	Casual retail work	Wages should match actual hours worked
Adam	Not working	Passive distribution may be less tax-effective under the 30% minimum tax

This does not mean family members should be artificially paid. The better approach is to document duties, hours, pay rates and employment arrangements. If a family member works in the business, wages should be commercially supportable.

The planning shift is important. Under the new setting, accountants may ask:

“Is this person receiving income because they worked in the business, or because the trust deed allows income to be distributed to them?”

That distinction may become central.

Planning question 3: What happens to the bucket company?

The family’s private company has previously received distributions to retain profits for future expansion. Under the proposed measure, corporate beneficiaries would not receive the same non-refundable credit for trustee-paid tax.

This weakens the bucket company’s strategy.

Current objective	Potential concern under proposed rules
Cap tax on trust income	Trustee minimum tax may already apply.
Retain cash for growth.	Company distribution may not produce the same outcome.
Defer personal tax	Deferral benefit may be reduced.
Keep funds available	Division 7A and unpaid entitlement issues still need to be managed.

The family, therefore, needs to consider whether the company should remain only as a bucket company or whether the trading business itself should eventually move into a company structure.

This is not a simple decision. A company may be better for retaining profits and funding expansion, but it also creates different compliance obligations, ownership issues, director duties and extraction rules.

Planning question 4: Should the business move to a company?

A company structure may suit a growing retail business that wants to retain profits, borrow funds, open new stores or eventually sell shares.

For the Rahman family, this may become a serious option because they want to open a second store and keep cash in the business.

Factor	Discretionary trust	Company
Income splitting	Historically flexible, but reduced by 30% minimum tax	Less flexible
Retaining profits	Often less straightforward	Usually simpler
Business expansion	Possible, but may be administratively awkward	Often clearer for finance and growth
Asset protection	Can be useful depending on the structure	The company provides a separate legal entity
Sale of business	A sale may involve business assets	The sale of shares may be possible
Compliance	Trust resolutions and distributions	Company tax return, ASIC, director duties

The company path may become more attractive as the business moves beyond family cash-flow planning into expansion, retained earnings and business value creation.

However, moving to a company should not be treated as a default answer. The family would need advice on capital gains tax, stamp duty, asset transfers, contracts, leases, employees, trading history, finance arrangements and commercial risk.

Planning question 5: Should the family retain the trust but change its use?

Another path is to retain the discretionary trust while reducing reliance on low-rate distributions.

For example, the trust could remain as the trading or asset-holding structure, while the family changes the way income is handled:

Strategy	Possible use
Pay commercial wages	For family members who genuinely work in the business
Reduce passive distributions	Especially to low-income beneficiaries who do not work in the business
Review company distributions	Test whether bucket-company planning still makes sense.
Retain trust for succession.	Use trust flexibility for long-term family planning.
Consider fixed trust features.	Where certainty is preferred over discretion

This may suit families that value the trust for non-tax reasons and do not want to restructure too quickly.

Planning question 6: What if the family does nothing?

Doing nothing may be acceptable for some families, but it should be a conscious decision.

For the Rahman family, doing nothing could mean continuing to distribute income to Sara, Adam or the bucket company in the same pattern used in previous years. That may increase the tax cost or reduce the benefit of the existing structure.

Risk area	Possible outcome
Continuing low-rate family distributions	Less tax benefit after 30% minimum tax
Continuing bucket-company distributions	Reduced benefit and possible complexity
Poor documentation	Higher risk during ATO review
No cash-flow planning	Trustee tax payments may affect working capital.
Delayed restructure	Less time to use transitional relief

The family may still decide that the trust is worth keeping. But that decision should be based on projected numbers, not habit.

Practical planning

For family groups, the following questions may be more useful than asking whether a trust is still “tax-effective”.

1. Who actually works in the business?

If a spouse or adult child works in the business, salary or wages may be commercially appropriate. However, the pay should reflect real work.

Relevant variables include:

Variable	Why it matters
Hours worked	Supports commercial remuneration
Duties performed	Distinguishes wages from passive distributions
Market rate	Helps test whether the pay is reasonable
Payroll records	Supports tax and employment compliance
Superannuation obligations	Must be considered for employees

 

2. Is the family trying to retain profits?

If the family wants to build cash reserves, buy equipment, open another store or reduce debt, a company may need to be considered.

Relevant variables include:

Variable	Why it matters
Working capital needs	Affects whether profits should remain in the business
Debt finance	Lenders may prefer clearer company structures.
Growth plan	Expansion may favour retained earnings.
Future sale	Company shares may be easier to transfer
Personal cash needs	Determines how much income must be extracted

 

3. Are distributions being made to people who need the money?

Historically, some families distributed income to adult children or lower-income family members even if the cash was retained elsewhere. Under the proposed measure, this may be less effective.

Relevant variables include:

Variable	Why it matters
Beneficiary’s tax rate	Determines whether 30% minimum tax changes the outcome
Cash actually paid	Helps test whether the arrangement is commercially real
Education or living costs	May support genuine family cash-flow planning
Age and dependency	Important for tax and family law considerations
Entitlement records	Poor records may create future disputes.

 

4. Is there a bucket company?

A company beneficiary should be reviewed carefully. The proposed rules may weaken the tax benefit, while existing Division 7A and unpaid present entitlement issues may still apply.

Relevant variables include:

Variable	Why it matters
Amounts distributed to the company	Identifies exposure
Cash paid or unpaid entitlement	Determines compliance complexity
Loans to family members	May create Division 7A issues
Purpose of the company	Tax-only purpose may be harder to justify.
Retained earnings plan	May indicate whether the trading company is better

 

5. Is asset protection still a key goal?

Many families use trusts because they are concerned about business risk. That reason may remain valid, but it should be tested.

Relevant variables include:

Variable	Why it matters
Business risk level	Retail leases, suppliers, employees and customers create exposure.
Ownership of key assets	Determines what is exposed to trading risk
Guarantees	Personal guarantees may reduce asset protection benefits.
Insurance	Maybe more important than structure alone
Family home ownership	Needs separate legal advice

 

Planning paths to consider

Path 1: Keep the discretionary trust and improve documentation

This path may suit families that still need flexibility, asset protection or succession planning.

The family may continue using the trust, but improve:

Area	Action
Trust resolutions	Prepare clear year-end resolutions.
Beneficiary records	Track entitlements and payments
Employment records	Document wages to working family members
Distribution policy	Reduce reliance on passive low-rate distributions.
Cash-flow modelling	Plan for trustee-level tax payments.

This is a conservative pathway. It accepts the trust but updates the way it is used.

Path 2: Keep the trust but pay genuine wages

This path may suit family businesses in which spouses or adult children work in the business.

The planning focus shifts from “who should receive a distribution?” to “who should be paid for actual work?”

This may be useful where:

Situation	Possible planning response
Spouse manages bookkeeping	Pay the commercial administration wage.
The adult child works in a store.	Pay casual wages through payroll.
Family member manages online sales.	Pay for actual digital and customer service work
Non-working family member receives distribution.	Review whether the distribution remains useful.

This path requires payroll discipline. It is not a licence to invent wages.

Path 3: Move the trading business to a company

This path may suit a business that is growing, retaining profits or preparing for finance.

It may be relevant for the Rahman family if they proceed with a second store.

Key considerations include:

Issue	Why is advice needed
Transfer of business assets	May trigger tax or duty consequences
Lease assignment	Landlord approval may be required.
Employee transfer	Payroll and employment obligations arise.
GST	Business transfer rules may apply.
Company governance	Directors have legal duties.
Profit extraction	Dividends and wages need planning.

This pathway may be commercially attractive, but it should be planned carefully.

Path 4: Consider a fixed trust

A fixed trust may be considered where a trust structure is still preferred, but annual discretion is no longer central.

This may suit family groups that want defined ownership interests rather than flexible yearly distributions.

Advantage	Limitation
More certainty	Less flexibility
May sit outside the proposed minimum tax, depending on final rules	Needs careful legal drafting
May suit succession planning	Not as flexible for family income allocation
Can clarify economic ownership	May not suit changing family circumstances

This path requires legal and tax advice because the trust deed and practical operation matter.

Path 5: Wind up or simplify the structure

Some families may decide that the trust is no longer worth the cost.

This may occur where:

Indicator	Possible conclusion
Business is small and stable.	Structure may be too complex.
No major asset protection needed	A simpler structure may be enough.
No meaningful tax benefit	Compliance cost may outweigh the benefit.
Children are not involved.	Succession flexibility may be less relevant.
The Bucket Company has no commercial role	Structure may need simplification

This is not necessarily a negative outcome. Simplification can be a valid tax planning strategy.

Conclusion

For the Rahman family, the proposed 30% minimum tax does not automatically require abandoning the family trust. However, it changes the purpose of the planning exercise.

Before the reform, the family may have focused heavily on distributing income to family members or a bucket company to manage taxes. After the reform, the discussion of better planning is likely to focus on commercial wages, retained earnings, business expansion, asset protection, succession and compliance costs.

The family has at least four realistic paths: retain the discretionary trust and improve documentation, use commercial wages for family members who genuinely work in the business, consider a company if retained earnings and expansion are central, or explore a fixed trust or other restructure if discretion is no longer necessary.

No single path is correct for every family. The right answer depends on the family’s actual goals, the amount of profit involved, who works in the business, whether cash is being retained, the role of any bucket company, and whether the trust still delivers non-tax benefits that justify its complexity.