For decades, discretionary trusts have been a core structuring tool for Australian property investors and family business owners. They offer flexibility in how income is distributed, protection against personal liability, and tax efficiency when income is streamed to beneficiaries on lower marginal rates.
The 2026 Federal Budget changes that calculus. From 1 July 2028, a new 30 per cent minimum tax will apply to discretionary trusts. For property investors holding assets through family trust structures, this triggers a planning window with a hard deadline and, in many cases, the need for transitional funding to support restructures.
This article covers what is changing, who is affected, and where private lending becomes a practical tool during the restructure process. Specific decisions should always be made with a qualified accountant or tax adviser.
The measures discussed below are based on recent announcements. Draft legislation has not been released and the rules may change before they pass Parliament.
The new rule, explained
Treasurer Jim Chalmers handed down his fifth Federal Budget on 12 May 2026. The trust reforms apply from 1 July 2028 and introduce a minimum 30 per cent tax on discretionary trust income.
Under the proposal:
- •Trustees will pay a minimum 30 per cent tax on the trust's taxable income each year.
- •Beneficiaries will still receive distributions and continue to declare them in their personal tax returns.
- •Non-corporate beneficiaries will receive non-refundable tax credits for the tax already paid at the trust level, reducing their personal tax payable.
- •Beneficiaries on marginal rates above 30 per cent pay a top-up at their personal rate.
- •Beneficiaries on marginal rates below 30 per cent (for example, non-working spouses, retirees on the Age Pension, or adult children with low income) effectively lose the benefit of distributing to a low-rate recipient.
The Government's stated rationale is that the current settings are "becoming unsustainable" given the number of discretionary trusts in Australia has more than doubled over the past 20 years to more than 900,000. The reform aims to align trust income tax with the corporate rate and reduce income-splitting benefits that are not available to most taxpayers.
What is excluded
Several categories of trust income are excluded from the new minimum tax:
- •Deceased estates.
- •Primary production income, protecting farming family trusts.
- •Certain income relating to vulnerable minors.
- •Income from assets of discretionary testamentary trusts that already existed at the date of the Budget announcement.
Widely held trusts such as managed investment trusts (MITs) and superannuation funds (including SMSFs) sit outside the discretionary trust framework and are not the target of this measure.
The three-year rollover window
Recognising that many existing structures will need to change, the Government has flagged that rollover relief will be available for three years from 1 July 2027. This is intended to allow family groups, business owners, and investors to restructure without triggering immediate CGT, stamp duty, or other transaction tax consequences during the transition.
The window runs from 1 July 2027 to 30 June 2030. For investors operating through trusts, this is the critical planning horizon over the next four years.
Why property investors should pay close attention
Property investors are disproportionately represented among trust users. A typical family trust may hold one or more investment properties, a share portfolio, and the equity in a family business. The trust structure has historically allowed:
- •Income from rental properties to be distributed to lower-income beneficiaries.
- •Capital gains on property disposals to be distributed efficiently, with each beneficiary applying their own marginal rate and CGT discount.
- •Asset protection separating personal liability from investment exposure.
- •Succession planning across generations.
Under the new regime, the income-splitting advantage is materially reduced. The 30 per cent floor applies regardless of which beneficiary receives the distribution. Combined with the CGT reforms announced in the same Budget (which replace the 50 per cent discount with cost base indexation and a 30 per cent minimum tax from 1 July 2027), the trust structure becomes less tax-efficient for many property investment strategies than it has been historically.
This does not mean trusts are no longer useful. The protection and succession benefits remain. It does mean the structure needs to be reassessed against the investor's actual position and objectives, and in some cases restructured.
Restructure scenarios that may emerge
Every investor's position is different, but common restructure scenarios over the rollover window are likely to include:
- •Transferring property assets out of a discretionary trust into another entity, where appropriate, to access better tax treatment for that asset class.
- •Moving from a discretionary trust to a different structure such as a fixed unit trust, company, or hybrid arrangement, depending on the income and capital growth profile of the underlying assets.
- •Reorganising the way debt is held against trust-owned property, particularly where existing loans cannot transfer cleanly to the receiving entity.
- •Consolidating multiple trusts that are no longer cost-effective to run under the new regime.
- •Reviewing wills, testamentary trust planning, and succession documents to ensure the structure aligns with the new rules.
Each of these can be the right answer in the right circumstances. None of them is universally appropriate. The decision needs proper tax and legal advice.
Where private lending fits into trust restructures
Restructures take time. They involve legal advice, accounting work, asset valuations, potential stamp duty implications in some jurisdictions, and the refinancing of any debt secured against the underlying assets. They are also frequently time-pressured, because the rollover window is finite and the underlying property continues to generate income, expenses, and tax obligations throughout the process.
Mainstream bank finance is generally not built for this kind of work. Approval timelines are long, and many banks struggle to refinance debt into newly established or restructured entities without a long track record. That is where private lending becomes a strategic tool.
Bridging finance during the restructure
When an asset is being transferred from an existing trust to a new entity, there is often a period where the legal title is moving, valuations are being finalised, and longer-term debt has not yet been arranged in the receiving structure. Bridging finance funds this transition, secured against the property itself, and is typically repaid once the long-term facility is in place.
Refinancing trust-held property
Where mainstream banks cannot or will not refinance into the new structure quickly enough, private commercial and residential investment loans can take out the existing facility. This avoids the restructure being held up by lender timelines and gives the investor control over the sequencing of the transition.
Working capital and transition cost funding
Restructures generate professional fees, valuation costs, duty obligations in some states, and ongoing holding costs on the underlying assets. Caveat loans and second mortgages secured against property within the structure can fund these costs without forcing the early sale of an asset that is still appreciating or generating yield.
Liquidity for tax events during transition
If the restructure involves crystallising a CGT event under the existing 50 per cent discount before 1 July 2027 (or a planned event during the transitional CGT period after that date), the resulting tax liability creates a cash flow demand. ATO tax debt lending and second mortgages can fund the tax liability without selling other assets at the wrong time.
Funding new acquisitions inside the restructured entity
Some investors will use the restructure as an opportunity to acquire additional property into the new entity, particularly where the new structure is better suited to commercial property or new builds (both of which retain more favourable tax treatment under the broader Budget reforms). Commercial property loans and development finance through private lenders can fund these acquisitions on timelines that suit the broader restructure plan.
Key dates at a glance
| Date | What happens |
|---|---|
| 12 May 2026 | Federal Budget announcement of new trust tax rules. |
| 1 July 2027 | Three-year trust restructure rollover window begins. |
| 1 July 2028 | 30 per cent minimum tax on discretionary trust income begins. |
| 30 June 2030 | Three-year trust restructure rollover window ends. |
The takeaway
The trust reforms do not abolish discretionary trusts. They reduce the tax efficiency of using them to split income to lower-rate beneficiaries, which has been one of the central reasons many family groups use them. For property investors operating through trusts, this is the trigger to review the structure against the underlying objectives and decide whether to continue, restructure, or transfer assets to a different entity.
The three-year rollover window from 1 July 2027 gives a defined planning horizon. Restructures executed well take months, sometimes longer. Aligning the legal, tax, and funding strategies from the outset, rather than treating the financing as an afterthought, avoids the kind of delays that erode the value of the restructure itself.
If you are working through a trust restructure that involves property and need flexible, time-sensitive funding to support the transition, our team is available to discuss bridging finance, caveat loans, second mortgages, commercial property funding, development finance, and ATO tax debt lending.
Disclaimer: This article is general information only and does not constitute tax, financial, legal, or credit advice. It has been prepared based on Federal Budget 2026 announcements as at 14 May 2026. The measures described are proposed and have not been enacted into law. The rules may change before legislation is passed. Readers should obtain independent advice from a qualified tax adviser, accountant, financial planner, and credit professional before making any decision based on this material.
