Trusts are one of the more flexible business and investment structures available in Australia, and one of the more misunderstood. Used well, they offer genuine advantages around tax planning, asset protection, and estate planning. Used poorly, or set up without ongoing professional oversight, they create compliance exposure.
At Stones Sharp, we work with clients across all of it, from initial structure selection through to annual tax obligations and planning as the rules evolve.
Those rules are shifting significantly right now; the 2026/27 federal budget proposes material changes to how trusts are taxed, and clients with existing trust structures should be across what may come if these changes get passed.
What is a trust?
The ATO defines a trust as an obligation imposed on a person or other entity to hold property for the benefit of beneficiaries. In practice, a trust separates legal ownership from the benefit of ownership. The trustee holds and manages the assets; the beneficiaries receive the income or capital from them.
A trustee can be an individual or a company, while beneficiaries can be individuals, groups, or companies. In some structures, a beneficiary can also act as trustee.
If you operate through a trust structure, you are required to hold a tax file number, lodge a trust tax return, hold an ABN, and register for GST if annual turnover exceeds $75,000
Discretionary Trusts
A discretionary trust gives the trustee the flexibility to decide how income is distributed among beneficiaries, and how much each receives, from year to year. This makes them well suited to family businesses and investment holdings where income levels and individual tax positions vary over time.
Tax Planning
Because the trustee can direct income to beneficiaries on lower marginal rates, the overall tax burden on distributions can be managed more effectively than in a company structure. Discretionary trusts have also historically been eligible for the 50% CGT discount, which companies cannot access.
Proposed 30% Minimum Tax
The 2026/27 budget proposes a 30% minimum tax on distributions from discretionary trusts from 1 July 2027. In practical terms, this means that regardless of a beneficiary’s marginal tax rate, distributions would be subject to a floor of 30% tax. For families who have structured their affairs to distribute income to lower-income beneficiaries, that flexibility will be considerably reduced.
The budget also proposes a transitional period for clients who want to restructure before the minimum tax takes effect, though restructuring a trust has its own tax and duty implications that need to be worked through carefully before any decisions are made.
This is the one that concerns me most for a lot of our clients. People who bought assets before 1985 have spent forty years assuming they’d never pay CGT on them. That assumption no longer holds after July 2027. If you’re in that position and you’re thinking about selling to fund your retirement, you need to understand what this actually means for your numbers before you make any decisions.” — Shane Borg, Director
Unit trusts
A unit trust distributes income and capital according to fixed entitlements, expressed as units. If you hold 40% of the units, you receive 40% of the income. Unlike a discretionary trust, the trustee has no flexibility to vary distributions based on individual circumstances.
Unit trusts are commonly used where multiple parties are pooling resources, particularly for property development or shared business investment, because the fixed entitlements provide clarity and predictability for each investor.
Unit holders pay tax on their share of trust income at their marginal rate. Unit trusts are also eligible for the 50% CGT discount, subject to the same proposed changes from 1 July 2027 that apply to discretionary trusts.
Hybrid Trusts
A hybrid trust combines elements of both. A portion of the trust operates on fixed unit entitlements while another portion remains at the trustee’s discretion. This can be appropriate where investors want defined interests in specific assets alongside the flexibility to vary income distributions more broadly. The structure adds complexity, and the compliance requirements reflect that.
Section 100A and ATO Scrutiny
Discretionary trusts in particular have attracted sustained ATO attention in recent years, particularly around what the ATO calls reimbursement arrangements under Section 100A.
What Section100A Means In Practice
These are arrangements where income is distributed to a beneficiary on a low marginal rate, but the economic benefit of that income flows to someone else entirely. Where the ATO determines that Section 100A applies, the trust’s entire net income can be taxed at the top marginal rate.
Our Approach
This is not a theoretical risk. The ATO has been active in this area and the consequences of getting it wrong are significant. We review trust distributions with Section 100A compliance in mind, and we recommend clients with existing discretionary trusts have their distribution arrangements reviewed if they have not done so recently.
A Note On Proposed Measures
The changes described above are proposals from the 2026/27 federal budget, not current law. To become law, they must be introduced as a bill, pass both the House of Representatives and the Senate in identical form, and receive Royal Assent from the Governor-General. At the time of writing, June 2026, there is not full parliamentary agreement on these measures, and the final form of any legislation may differ from what was announced. We expect greater clarity over the coming months as the legislative process progresses.
We are monitoring developments closely and will update clients as details are confirmed.
Choosing the right trust structure
The right trust structure depends on what you are trying to achieve, who is involved, and how the tax and compliance picture applies to your specific circumstances. We work with clients to assess the options, set up the structure correctly, and manage the ongoing obligations, including as the legislative environment changes.
If you would like to discuss your trust structure or review an existing arrangement, get in touch with our team.
