30% Minimum Tax on Discretionary Trusts: Part 1

The Government proposes to introduce a 30% minimum tax on discretionary trusts from 1 July 2028. The legislation has not yet been released. However, based on the current proposal, using a bucket company may no longer provide its usual tax benefit.

How does a bucket company work now?

A bucket company is a company that receives income from a discretionary trust.

For example, a trust earns $100,000. Instead of distributing the income to an individual on a higher tax rate, the trustee distributes it to a bucket company.

Assuming the company pays tax at 30%:

• Trust income distributed to the company: $100,000
• Company tax: $30,000
• Amount remaining in the company: $70,000

The company can retain the $70,000. Its $30,000 tax payment also creates franking credits that may be attached to a future dividend.

What is proposed?

Under the proposed rules:

• The trustee will pay minimum tax of 30% on the trust's taxable income
• Individuals and other non-corporate beneficiaries may receive a non-refundable credit for that tax
• A bucket company will not receive the credit

This could result in tax being paid twice.

Example: $100,000 distributed to a bucket company

The trust earns $100,000 and appoints the income to a bucket company.

First, the trustee pays $30,000 in minimum tax. This leaves $70,000 in cash for the company.

The company is still assessed on the full $100,000. Because it cannot claim the trustee's $30,000 tax payment as a credit, the company must pay another $30,000 in tax.

• Trust taxable income: $100,000
• Minimum tax paid by the trustee: $30,000
• Cash received by the company: $70,000
• Tax paid by the company: $30,000
• Cash remaining in the company: $40,000
• Total tax paid: $60,000

In this simplified example, $60,000 of tax is paid and only $40,000 remains.

The franking-credit problem

The company's own $30,000 tax payment creates $30,000 of franking credits. The tax paid by the trustee does not create franking credits for the company.

However, the company has only $40,000 available to distribute.

At a 30% franking rate, a $40,000 cash dividend can carry a maximum franking credit of approximately $17,143.

To distribute the full $30,000 franking credit, the company would need to pay a cash dividend of $70,000. It does not have that amount—it has only $40,000.

The remaining franking credits may stay in the company's franking account for possible use with a future dividend. Their treatment will depend on the final legislation and the company's future circumstances.

How Interise Legal can help

Once the legislation is available, Interise Legal can work with your accountant or tax adviser to:

• Review your trust and bucket-company structure
• Explain how the new rules apply
• Review unpaid present entitlements and Division 7A arrangements
• Compare keeping the trust with restructuring into a company or fixed trust
• Consider available rollover relief and Victorian duty consequences
• Prepare the legal documents required to implement the chosen structure

The legislation will determine whether your current structure should be retained, changed or replaced. Interise Legal can help you make and implement that decision before the transitional period expires.

This article is based on Government announcements and consultation materials available as at 12 August 2026. The proposal is not yet law. The examples are simplified and do not constitute legal, accounting or tax advice.