The Federal Government’s proposed 30 per cent minimum tax on discretionary trusts is drawing strong opposition from Australia’s property industry. Industry groups argue the measure could reduce developer cash flow, make common family business structures less viable and slow the delivery of new housing at a time when construction targets are already under pressure.
For developers assessing how these proposed changes may affect project viability, reviewing suitable property development finance early may become increasingly important.
Key Takeaways
- The proposed rules would impose a 30 per cent minimum tax on discretionary trusts from 1 July 2028.
- Beneficiaries taxed below 30 per cent may lose part of their non-refundable tax credit.
- Corporate beneficiaries would no longer receive the proposed tax credits.
- Property groups warn the changes could reduce cash available for new housing projects.
- Restructuring trust-owned property may create substantial state stamp duty costs.
What Is the Proposed Discretionary Trust Tax?
The 2026–27 Federal Budget includes a proposal to fundamentally change the taxation of family and discretionary trusts.
Traditionally, trusts operate as flow-through structures. Income is distributed to beneficiaries and taxed according to each beneficiary’s personal marginal tax rate.
Under the proposed changes, trustees would pay a minimum 30 per cent tax on taxable trust income before making distributions from 1 July 2028.
Non-corporate beneficiaries would receive a non-refundable credit for tax already paid by the trust. However, when a beneficiary’s personal tax rate is below 30 per cent, any unused portion of the credit would be lost.
This could affect beneficiaries such as:
- retirees
- adult students
- stay-at-home partners
- other family members in lower tax brackets
Corporate beneficiaries would be excluded from receiving these credits, removing common tax-deferral arrangements involving bucket companies.
What Other Tax Changes Affect Trusts?
The proposed trust tax does not sit in isolation.
According to the client content, accompanying measures would also:
- abolish the 50 per cent Capital Gains Tax discount for trusts from 1 July 2027
- significantly restrict negative gearing for residential property purchased through trusts
Together, these reforms could substantially change how property investors, family businesses and developers use discretionary trusts.
For investors considering different property ownership and finance structures, commercial investment loans may remain relevant depending on the asset and borrowing entity.
Why Could the Proposal Affect Housing Supply?
Australia is already struggling to meet its target of delivering 1.2 million new homes by 2029.
The Property Council of Australia argues that family-owned and mid-tier developers deliver a significant share of new suburban housing. Many of these businesses operate through discretionary trusts.
Applying a 30 per cent minimum tax at the trust level could reduce the amount of capital available to:
- acquire development sites
- fund planning and approvals
- commence construction
- move projects through development pipelines
Industry groups fear this could delay new projects and push national housing targets further out of reach.
Property Council chief executive Mike Zorbas told Broker News:
“This is a flawed policy that is wrong at many levels and risks shrinking new housing supply further.”
“All this while costs of capital, labour, and materials continue to rise.”
Are Trusts Used Only to Reduce Tax?
Property industry representatives argue that discretionary trusts are often used for asset protection, rather than simply tax minimisation.
Property development involves significant financial and legal risk. Developers can face:
- construction delays
- builder insolvencies
- cost overruns
- contractual disputes
- changing market conditions
Trust structures can help separate business assets and reduce the exposure of personal wealth when projects encounter difficulties.
The industry’s concern is that reducing the financial viability of these structures may penalise legitimate businesses using trusts to manage commercial risk.
Why Could Restructuring Be Expensive?
The Government has proposed a three-year rollover relief period beginning on 1 July 2027, allowing businesses to move out of trusts and into company structures.
However, federal tax rollover relief does not automatically remove state-based taxes.
Transferring property from a trust to a company could still trigger:
- stamp duty
- registration and legal costs
- valuation expenses
- refinancing requirements
For property businesses with substantial portfolios, these costs could reach significant levels and place further strain on project cash flow.
Developers reviewing their structure may also need to consider how existing construction loans would be treated if assets or borrowing entities change.
What Could the Proposal Mean for Developers?
If the reforms proceed in their current form, property developers operating through discretionary trusts may need to reassess:
- ownership structures
- projected tax liabilities
- funding requirements
- development feasibility
- future exit strategies
The changes may also influence whether smaller developers continue building new housing or delay projects due to reduced returns and higher restructuring costs.
What Happens Next?
The measures remain proposals and may change before becoming law.
Property industry groups are calling for the discretionary trust tax to be removed entirely, arguing that it conflicts with the Government’s housing supply objectives.
Developers and investors should avoid making decisions based solely on early announcements. Legal, accounting and finance advice will be important as the final legislation becomes clearer.
Learn More About Perry Finance
To discuss finance options for property development or commercial projects, learn more about Perry Finance or speak with the team through the contact page.
