Trust Tax Overhaul Flagged as a Direct Risk for Brokerages Running Discretionary Trusts

TL;DR

• The federal government proposes a 30% minimum tax on discretionary trust distributions, announced at the May Budget.
• Trusts can make a one-off election to nominate fixed beneficiaries and keep current tax treatment.
• Breaching that election triggers the top marginal rate, up to 47%, plus the Medicare levy for that year.
• COSBOA argues the penalty is disproportionate and a simpler path exists: move straight to the 30% rate.
• Brokerages commonly use discretionary trust structures, so the exposure is direct.

This is a tax story, not a technology story. But it is one that every broker running a discretionary trust should read before their accountant does.

What is actually changing, and why should a broker care?

Right now, a discretionary trust pays no tax at the trustee level. Income flows to beneficiaries, who are each taxed at their own marginal rate. That structure allows a trustee to direct income toward family members on lower rates, reducing the household's overall tax bill. There is no minimum rate attached to those distributions today.

The government wants to change that. At the May Budget, Labor announced a flat 30% minimum tax on discretionary trust distributions. Brokerages are themselves small businesses, and many operate through discretionary trust structures for succession planning and asset protection. The proposed change lands directly on that group.

The Council of Small Business Organisations Australia (COSBOA) has been vocal in its opposition. Chief executive Skye Cappuccio described the exposure draft legislation as "bad policy that will hurt small business," and her specific concern is not the 30% floor itself. It is what happens when a trust tries to leave the elected arrangement.

Is the government's concession enough to protect small family businesses?

Facing industry pushback, the government offered a concession. Existing discretionary trusts can make a one-off election to nominate fixed beneficiaries and retain current tax treatment. That sounds reasonable until you read the exit clause.

If a trustee later distributes income differently from the election, the trust loses the benefit and is taxed at the top marginal rate, up to 47%, plus the Medicare levy, for that year. Cappuccio's argument is that family businesses are not static. A son or daughter might return to work in the business. Circumstances change. Penalising that change at the highest possible rate is, in her view, unnecessary.

She points to a straightforward alternative already built into the proposal: let the trust move to the 30% minimum tax rather than face the penalty rate. "There is no need to impose a higher rate for that year," she said. The concession exists, but it is fragile in a way that makes long-term planning difficult for any broker running a family trust structure.

CAFBA chief executive David Bushby raised a related concern, saying he was "deeply concerned that these complex new rules and valuation requirements will adversely impact our members and their commercial clients, leading to unintended consequences and possibly encouraging avoidance behaviour in the market." Outgoing FBAA chief Peter White also cautioned that reform aimed at improving housing access could end up hurting the people it was meant to help.

How does this fit into the broader tax package?

The minimum trust tax is one part of a wider reshaping of investment and business taxation. The same Budget flagged changes to negative gearing and the capital gains tax discount. Negative gearing benefits are being preserved for existing properties but tightened for future purchases. The 50% CGT discount is being replaced with cost-base indexation combined with a 30% minimum tax on net capital gains.

Taken together, these represent a significant shift in how investment and business income is taxed in Australia. For a broker whose practice sits inside a discretionary trust, the trust tax change is the most immediate pressure point. But the CGT changes matter too, particularly for any broker thinking about succession or eventual sale of the practice.

This is not COSBOA's first objection. When the government lifted the small business CGT concession turnover threshold from $2 million to $10 million, Cappuccio argued the stakes went beyond dollar figures. "It is about whether Australia still encourages people to back themselves and build something over the long term," she said.

For brokers already managing compliance pressure on the lending side, adding structural tax uncertainty to the business entity itself is a real operational concern. If you are thinking about how AI tools can reduce administrative load so you have more time for exactly this kind of planning, the post on what it costs a finance broker to ring back every enquiry is worth reading alongside this one. And if you are thinking about how your practice handles after-hours contact while you are dealing with accountants and lawyers, how finance brokers lose leads every night after 5pm covers the operational side.

The consultation window on the exposure draft closed on 18 September 2026. The government moves toward finalising the bill for introduction to Parliament after that date. If your brokerage runs through a discretionary trust, the time to get your accountant across the exit penalty clause is now, not after the bill is introduced.

You can read the original reporting at Mortgage Professional Australia.

FAQs

Does the proposed 30% minimum tax apply to all trusts or just discretionary trusts?
Based on the source reporting, the proposed minimum tax applies specifically to discretionary trusts. Fixed trusts and other structures are not mentioned in the proposal as described by COSBOA and the government's exposure draft.

What is the fixed-beneficiary election and how does a broker use it?
Under the government's concession, an existing discretionary trust can make a one-off election to nominate fixed beneficiaries. Those beneficiaries retain current tax treatment. The election is largely locked in once made, so any broker considering it should take detailed advice before electing.

What triggers the 47% penalty rate?
If a trustee breaches the fixed-distribution election by distributing income differently from what was agreed, the trust loses the concession benefit. The trust is then taxed at the top marginal rate, which can reach 47%, plus the Medicare levy, for that year.

What does COSBOA say should happen instead?
COSBOA chief executive Skye Cappuccio argues that if a trust needs to change its distribution arrangements, it should simply move to the government's proposed 30% minimum tax rather than face the higher penalty rate. She describes this as a straightforward alternative already available within the proposal.

Are broker industry bodies involved in the consultation?
Yes. CAFBA and the FBAA have both raised concerns about the broader tax package since the May Budget. CAFBA chief executive David Bushby specifically flagged concern about complex new rules adversely impacting members and their commercial clients.

Originally published at theautomate.io.