Trustee pays 30 per cent. The bucket company pays its own tax on top. Treasury’s own example reaches 60 per cent.
Your client’s family trust distributes to a bucket company. Standard structure. Thousands of them across Australia.
Under the proposed minimum tax on discretionary trusts, the combined tax at the trust and company level could hit 60%. Treasury released its consultation paper on 8 July. Here is what it says and what it still cannot answer.
What the paper confirms
From 1 July 2028, the trustee of a discretionary trust pays a 30% minimum tax on the trust’s taxable income.
Individual beneficiaries get a non-refundable offset to credit the trustee’s payment against their own tax. If your marginal rate is above 30%, the offset reduces your bill. If it is below 30%, you lose the difference. The offset cannot reduce the Medicare levy and cannot be carried forward.
Corporate beneficiaries get no offset. The company pays its own corporate tax on top of the 30% the trustee already paid. Treasury’s own example: $100,000 of trust income distributed to a company. Trustee pays $30,000. Company pays $30,000. Total: $60,000 before a dollar reaches a shareholder.
The design gaps
First, what is a discretionary trust? The paper acknowledges the existing definition, any trust that is not a “fixed trust”, may be “broader than intended”. It asks for feedback. The scope is not settled.
Second, the bucket company problem. Denying corporate beneficiaries any offset means stacking at up to 60%. Treasury calls this “the simplest mechanism” to prevent interposing companies. Thousands of legitimate bucket company structures would disagree.
Third, rollover relief. Trusts can restructure into companies or fixed trusts from 1 July 2027 for three years. But the conditions are tight: all or essentially all assets must be transferred. Companies may be restricted to a single class of ordinary shares. A new “statutory family unit” concept, which does not yet exist in the law, would determine whether the ownership test is met.
Fourth, excess franking credits. The Government is still deciding between refunding them to the trustee or carrying them forward. Refunds may add complexity; carry-forward brings extra compliance and integrity-rule burdens. Neither is settled.
Fifth, collection. Director personal liability for corporate trustees. A Commissioner right of reimbursement from trust assets. PAYG instalments at the trustee level. Corporate trustees with no substantial assets, this is aimed at you.
Where it stands
The paper asked 17 discussion questions. Submissions closed on 31 July 2026, a 23-day window on the most significant structural change to trust taxation in decades. The design is not locked in, and the exposure draft legislation is still to come.
General information only. This note was accurate when written. The law may have changed since and the note is not updated. It is not legal or tax advice, does not take account of your circumstances and must not be relied upon as a substitute for advice on your own matter. If the issue is live for you or your client, email arda@nortonquaytaxlaw.com.au for advice on the current position.