How to Set Up a Trust in Australia: The Business Owner’s Guide (2026 Update)
Trusts are one of the most widely used structures in Australian business and investment — and one of the most talked-about following the 2026-27 Federal Budget.
On 12 May 2026, the Albanese Government announced the most significant overhaul of trust taxation in Australia’s history. A new 30% minimum tax on discretionary trusts will apply from 1 July 2028. The income-splitting strategy that has long been one of the primary reasons business owners choose the trust structure is, in its current form, effectively coming to an end.
This does not mean trusts are finished. The asset protection and succession planning benefits remain intact. Significant exceptions apply. And a three-year rollover relief window opens from 1 July 2027 for businesses that want to restructure. But the calculus has changed — and business owners currently operating through a discretionary trust, or considering setting one up, may want to revisit the picture before proceeding.
This article covers what trusts are, how they work, what the budget changes mean, and what steps may be worth considering.
What Is a Trust?
A trust is a legal arrangement in which one party (the trustee) holds and manages assets for the benefit of another party (the beneficiary). The trust itself is not a separate legal entity — unlike a company, it cannot enter contracts, own property, or sue in its own name. The trustee acts in that capacity on behalf of the trust.
The legal relationship is created by a trust deed — a document that establishes the trust, identifies the trustee and beneficiaries, defines the trustee’s powers and obligations, and governs how the trust operates.
A trust involves at least three roles, though these can overlap:
- Settlor — the person who establishes the trust by contributing an initial sum (usually a nominal amount) and executing the deed. The settlor typically plays no ongoing role.
- Trustee — the legal owner of the trust assets, responsible for managing them in accordance with the trust deed and their duties at law. The trustee can be an individual or a company.
- Beneficiary — the person (or class of persons) for whose benefit the trust assets are held. Depending on the type of trust, beneficiaries may have a fixed entitlement or a discretionary interest.
Types of Trusts Used in Business
Discretionary (Family) Trusts
The discretionary trust — commonly called a family trust — has been the most widely used trust structure in Australian business. Treasury estimates there are currently around one million family trusts in Australia, including approximately 350,000 active small businesses.
Under a discretionary trust, the trustee has the discretion to determine, in each financial year, how the trust’s income and capital is distributed among the pool of eligible beneficiaries. Those beneficiaries typically include family members, related companies, and other entities.
Why businesses have used them:
- Tax flexibility. By distributing income to beneficiaries in lower tax brackets — adult children, spouses, related entities — the effective tax rate on business income could be managed. This has been the primary driver of the structure’s popularity.
- Asset protection. Assets held in a discretionary trust are generally not personally owned by any individual beneficiary and may be protected from claims by creditors of individual beneficiaries.
- Estate planning and succession. Discretionary trusts allow assets to pass between generations without forming part of a deceased estate, and provide flexibility over distribution across a family group.
What the 2026 Budget changes: The income-splitting benefit is the one under direct attack. From 1 July 2028, the tax flexibility argument for a discretionary trust looks very different. The other benefits remain.
Unit Trusts
In a unit trust, the trust’s assets and income are divided into units — similar to shares in a company. Each unit holder owns a proportional interest in the trust and is entitled to a corresponding share of income distributions.
Unlike a discretionary trust, distributions in a unit trust are not discretionary — they follow the unit holding. Unit trusts are widely used for property investment, joint ventures, and passive investment arrangements where the parties want fixed, proportional entitlements.
The 2026 Budget changes focus specifically on discretionary trusts. Unit trusts are not directly affected by the 30% minimum tax measure, though they are affected by the broader CGT changes discussed below.
Testamentary Trusts
A testamentary trust is established by a will and takes effect on the death of the testator. It is primarily an estate planning tool rather than a business structure.
Testamentary trusts existing at the date of the budget announcement (12 May 2026) are expressly exempt from the 30% minimum tax measure. New testamentary trusts established after that date are not exempt. For business owners reviewing their wills and estate plans, the desirability of including a testamentary trust structure is worth reassessing with an adviser given this change.
The 2026 Budget Changes: What Is Actually Happening
The 30% Minimum Tax on Discretionary Trusts
Announcement date: 12 May 2026
Proposed commencement: 1 July 2028
Status: Budget announcement — legislation required. Not yet law.
Under the proposed measure, from 1 July 2028:
- The trustee will pay 30% tax on the taxable income of the discretionary trust, regardless of how income is distributed to beneficiaries
- Beneficiaries will receive non-refundable tax credits for the tax already paid by the trustee, reducing their own personal income tax obligations on trust distributions
- The effective result: the minimum tax rate on trust income becomes 30%, regardless of the marginal rate of the beneficiary receiving the distribution
The income-splitting strategy — distributing trust income to family members in lower tax brackets to achieve an effective tax rate below 30% — is directly neutralised by this measure.
The Government’s stated rationale: The joint statement from the Prime Minister, Treasurer, and Finance Minister described the current settings as allowing many Australians to “plan their tax affairs in ways that aren’t available to most people.” The number of discretionary trusts in Australia has more than doubled over 20 years. The reform is framed as a fairness measure.
Who is most affected: Businesses and individuals currently distributing trust income to beneficiaries on marginal tax rates below 30% — including adult children with no other income, non-working spouses, and similar arrangements. Where all beneficiaries are already paying 30% or more, the effective impact is limited.
Who is not affected: According to Treasury modelling, around 40% of small businesses operating through discretionary trusts are not expected to face additional tax or need to restructure as a result of the measure.
Exceptions to the 30% minimum tax:
- Deceased estates
- Primary production income (farming businesses)
- Certain income relating to vulnerable minors
- Income from assets of discretionary testamentary trusts existing at the date of announcement (12 May 2026)
Rollover Relief for Restructuring
Recognising that many businesses will want to restructure, the Government has announced rollover relief available for three years from 1 July 2027 — the period immediately before the 30% minimum tax commences.
This relief is intended to allow businesses to move from a discretionary trust structure to a company or other structure without triggering the tax costs that would ordinarily arise on such a transfer (primarily CGT and duty on asset transfers).
The Small Business and Family Enterprise Ombudsman will be empowered to assist businesses considering restructuring options.
The three-year window from 1 July 2027 to 30 June 2030 is the practical window for structured transitions. Businesses that act within this period can access the concessions; those that delay may face the full cost of restructuring without relief.
The CGT Changes (Affecting Trusts and Individuals)
Separately — and also significant for trust structures — the 2026 Budget proposes replacing the 50% CGT discount with cost base indexation and a 30% minimum tax on net capital gains, commencing 1 July 2027.
Key points:
- The change applies to individuals, trusts, and partnerships
- Assets held before 1 July 2027 benefit from transitional arrangements — the 50% discount continues to apply to gains accruing before that date
- Assets acquired after 1 July 2027 will be subject to the new indexation and 30% minimum tax regime
- New residential properties are treated differently — investors in new builds can choose between the 50% discount or the new arrangements
For trusts holding investment assets — property, shares, business assets — the CGT change is a significant shift from the current position. Trustees considering whether to sell assets in the near term may want to factor in the transitional timing carefully.
An Important Caveat
Both the 30% minimum tax on discretionary trusts and the CGT changes are budget announcements, not yet law. They require legislation to be introduced and passed by both houses of Parliament. The Government does not currently hold a Senate majority, and the crossbench and Opposition will need to be engaged.
The measures may be amended, delayed, or in some cases not proceed in their current form. That said, the policy intent is clearly stated and the political momentum is significant.
Business owners making structural decisions — particularly those considering setting up a new discretionary trust — may want to think carefully about whether that structure still makes sense given the announced direction of policy, even before the legislation is finalised.
The Process of Setting Up a Trust
For those proceeding with a trust structure — whether discretionary, unit trust, or otherwise — the setup process involves the following steps.
Step 1: Determine the Appropriate Type
The right type of trust depends on the purpose, the parties involved, and the tax and asset protection objectives. Given the budget changes, the analysis of whether a discretionary trust or an alternative structure (unit trust, company) better serves the business’s objectives is more nuanced than it was previously.
Step 2: Appoint a Trustee
For business trusts, a corporate trustee — a company specifically established to act as trustee — is generally preferred over an individual trustee. It provides continuity, clearer separation between trust and personal affairs, and allows changes in control through share transfers without formal amendments to trust documents.
Step 3: Prepare the Trust Deed
The trust deed is the governing document and should be prepared by a lawyer tailored to the specific purpose. Key provisions include the identification of the trustee, settlor and beneficiaries; the trustee’s investment and management powers; distribution provisions; variation rights; and the vesting date (Australian law generally requires trusts to vest within 80 years).
Given the budget changes, trust deeds being prepared now may benefit from provisions that anticipate potential restructuring — for example, provisions that facilitate conversion of a discretionary trust to a unit trust or a company structure with minimal friction if that becomes desirable.
Step 4: Execute and Stamp
The trust deed is executed by the settlor and trustee. Stamp duty applies in most Australian states — the amount varies by jurisdiction.
Step 5: Fund the Trust
The trust is settled with an initial amount — typically $10 — from the settlor. Subsequent assets are then transferred to or acquired by the trustee in its capacity as trustee.
Step 6: Tax Registrations
The trust requires its own Tax File Number (TFN) and, if it will carry on an enterprise, an ABN and GST registration. Bank accounts are opened in the name of the trustee (e.g. “ABC Pty Ltd as trustee for the XYZ Family Trust”).
Step 7: Consider a Family Trust Election
For discretionary trusts being used in a business context, a family trust election may provide access to certain loss utilisation concessions. This is worth discussing with a tax adviser at setup.
What Businesses Currently in a Discretionary Trust May Want to Consider
For the estimated 350,000 small businesses currently operating through a discretionary trust, the budget announcement raises questions that may be worth thinking through with both a lawyer and an accountant:
- Does the current structure still achieve its tax objectives given the proposed 30% minimum tax? If all the business’s beneficiaries are already on marginal rates above 30%, the practical impact may be limited. If income is currently being split to lower-bracket beneficiaries, the picture changes materially.
- Are there other benefits of the trust structure — asset protection, succession planning — that continue to justify the structure regardless of the tax change?
- Would restructuring to a company make sense? For many businesses, a company at the 25% small business tax rate may be more tax-effective than a trust subject to a 30% minimum. The rollover relief window from 1 July 2027 may make the transition more cost-effective than it would otherwise be.
- Is restructuring urgent? The commencement date is 1 July 2028. The rollover relief window opens 1 July 2027. There is time — but waiting until 2028 to start thinking about it is likely to produce a worse outcome than acting during the relief window.
- What are the CGT implications of any restructure? Moving assets from a trust to a company ordinarily triggers CGT. The rollover relief is designed to address this — but its precise scope and conditions will depend on the legislation when it is enacted.
Common Misconceptions — Updated
“Assets in a trust are always protected from creditors.” Not always. Protection depends on the structure of the trust, the nature of the assets, and the specific claim. The budget changes do not affect the asset protection analysis.
“A trust avoids tax.” This has always been an oversimplification, and is now more clearly incorrect for discretionary trusts. Tax flexibility — not elimination — has been the accurate framing, and that flexibility is being substantially reduced.
“The budget changes mean trusts are worthless.” Not so. Asset protection, succession planning, and estate planning uses of trusts remain. Unit trusts are not directly affected by the minimum tax measure. Exceptions apply to primary production and certain other income. The reform targets the income-splitting benefit specifically.
“I should rush to set up a trust before the changes take effect.” This requires careful thought. Setting up a discretionary trust now, in anticipation that income splitting will be neutralised in 2028, may produce two years of tax benefit followed by a structure that no longer achieves its primary objective. Getting advice on whether the structure is genuinely fit for purpose given the announced changes is worth prioritising over speed.
The Bottom Line
Trusts remain a legitimate and useful structure for many Australian businesses and investors. Asset protection, succession planning, and estate planning benefits are unaffected by the budget changes.
But the primary commercial argument for the discretionary trust — tax flexibility through income splitting — is set to be fundamentally changed from 1 July 2028. For business owners currently operating through a discretionary trust, or considering establishing one, the 2026 Budget makes a review of the structure’s ongoing suitability more pressing than it has been at any point in the last two decades.
The rollover relief window from 1 July 2027 creates a structured opportunity for businesses that decide to transition. Making that decision thoughtfully — rather than under time pressure in 2027 — is likely to produce a better outcome.
These are proposed measures and have not yet been legislated. Independent legal and tax advice on the implications for a specific business structure is strongly recommended before any decisions are made.
This article contains general information only and does not constitute legal advice. Envision Legal accepts no liability for any loss arising from reliance on this content. You should seek independent legal advice tailored to your specific circumstances. For enquiries, contact Envision Legal.