What Kind of Trust Do You Have?
Why It Matters Under the Proposed 30% Trust Tax
Many of our GrowthMD clients use trusts to operate businesses, hold practice premises or investments, and manage family wealth.
On 14 October 2026, the Federal Government introduced legislation proposing a minimum 30% tax on discretionary trusts from 1 July 2028.
Not all trusts will be affected. However, the proposed changes could significantly affect some medical practices and medical professionals, depending on their existing structures, the nature of the income they earn, and the beneficiaries entitled to that income.
Over the past few weeks, I've found that many clients aren't entirely clear on what type of trust they have, or the nuances of their particular trust deed.
The important question when considering the proposed changes is not simply whether you have a trust, but what type of trust you have, how it operates and who is entitled to its income.
What's Changing?
Under the proposed legislation, discretionary trusts would generally pay a minimum 30% tax on their taxable income.
Individual beneficiaries would receive a non-refundable credit for their share of the tax the trustee pays, but corporate beneficiaries, including the widely used “bucket companies”, would not.
This could result in substantially higher overall taxation for some existing arrangements.
Certain trusts and income categories are intended to be excluded, including fixed trusts, deceased estates, complying superannuation funds, special disability trusts and qualifying testamentary trust income. Primary production income and certain income relating to vulnerable minors are also intended to be excluded.
The proposed legislation also provides restructuring relief and an alternative election regime for eligible trusts. However, these options won't necessarily be appropriate for everyone.
I also stress that these measures are not yet law, and the final details may change.
1. Discretionary Trusts (Often Referred to as Family Trusts)
Discretionary trusts let the trustee decide which beneficiaries receive income or capital and in what proportions, subject to the trust deed.
They are commonly used in medical practice service entity arrangements and to hold business and investment assets.
Under the proposed rules, discretionary trusts will generally be subject to the 30% minimum tax unless an exclusion or alternative arrangement applies.
The greatest impact may arise where trust income is allocated to lower-income beneficiaries or corporate beneficiaries. In particular, bucket companies would not receive a credit for the minimum tax the trustee pays and would remain liable for their own income tax, potentially resulting in double taxation.
Under the proposed legislation, affected trusts would have three broad options:
Retain the existing structure: Pay the 30% minimum tax. This may remain appropriate in some circumstances, particularly where beneficiaries are on higher marginal tax rates, or where the flexibility and asset protection benefits of the trust outweigh the additional tax cost
Restructure: Temporary rollover relief is proposed for eligible transfers between 1 July 2027 and 30 June 2030. Strict conditions apply, and stamp duty and legal costs are not covered by the federal income tax relief
Make an election: Eligible existing trusts may elect out of the minimum tax by nominating beneficiaries to receive fixed proportions of all income and capital. This effectively commits the trustee to ongoing fixed distribution arrangements. A breach of those arrangements would generally automatically revoke the election and cause the trustee to be assessed on the trust’s entire net income for that year, generally at a 47% tax rate.
Each option has different tax, legal and commercial consequences, and the most appropriate approach will need to be considered on a case-by-case basis.
Importantly, the proposed reforms do not change the existing personal services income rules or the tax principles governing profit allocations for professional practice.
2. Unit Trusts
Unit trusts are commonly used where medical practitioners or investors jointly own a practice business, practice premises or investment assets.
Generally, unitholders have proportionate entitlements to income and capital, although their actual rights depend on the terms of the trust deed.
Fixed trusts are intended to be excluded from the proposed minimum tax. The proposed legislation introduces an additional fixed-trust test, allowing a trust to qualify where no person has discretion that could significantly change beneficiaries' entitlements.
While many unit trusts should remain outside the proposed changes, don't assume that simply having a unit trust means you're unaffected. The trust deed's wording will be critical.
For example, powers to issue units below market value, alter unitholder rights or exercise discretion between unit classes may affect the outcome.
Where a family trust holds units in a unit trust, each trust must be assessed separately.
3. Hybrid Trusts
Hybrid trusts combine fixed and discretionary entitlements.
They have historically been used in medical practice ownership structures, particularly where practitioners have fixed capital entitlements, but the trustee retains discretion over income allocations. They are also used for investment purposes.
Although the proposed legislation does not specifically identify hybrid trusts, they may be caught where discretionary powers can significantly change beneficiaries' entitlements.
Fixed capital entitlements alone will not necessarily be sufficient for a hybrid trust to qualify as a fixed trust.
Given how commonly hybrid trusts are used in medical practice ownership structures, we'll pay particular attention to this when reviewing our clients' arrangements.
4. Testamentary Trusts
Testamentary trusts are established through wills and are commonly used for estate planning, asset protection and managing family wealth.
Under the proposed changes, deceased estates under administration are intended to be excluded.
However, for ongoing testamentary trusts, the exemption applies to qualifying income rather than automatically to the entire trust.
Whether income qualifies will depend on its source, who receives it, and the relevant integrity provisions.
If your will includes testamentary trusts, it's worth revisiting those arrangements with your estate-planning lawyer once the legislation is finalised.
What Should You Do Now?
Firstly, it's important to remember that these changes are not yet law. The legislation is still subject to the parliamentary process, and the final rules may change.
While it's sensible to understand how your existing arrangements could be affected, there is no need to rush into restructuring or making significant decisions at this stage.
The first step is to understand your current arrangements, including the trust deed, ownership interests, income entitlements and assets held.
Restructuring should never be considered solely from a tax perspective.
Many trusts are established for important commercial reasons, including asset protection, business ownership, succession planning, and estate planning.
Changing a structure may affect these arrangements, along with financing obligations, stamp duty and legal costs.
Any decision should consider the broader commercial, legal and financial implications, not simply the potential tax savings.
How GrowthMD can help
Over the coming months, we'll be working through what these proposed changes could mean for our clients and identifying structures that may warrant closer review.
Importantly, we won't be looking at tax in isolation. The broader commercial objectives of each practice and its owners are equally important considerations.
Our intention is to commence a staged review process in early 2027, subject to the legislation being finalised.
Where required, we'll work with your legal and other advisers to ensure the broader implications are properly considered.
If you have any questions or need more information, feel free to contact us at GrowthMD.
Important information: As at 19 October 2026, these measures remain proposed legislation and may change. This article contains general information only and does not constitute tax, financial or legal advice. Individual circumstances and the final legislation should be considered before taking action.
