Labor proposes change to taxing discretionary trusts
The Leader of the Opposition, Mr Bill Shorten, has announced that a Labor Government would introduce a standard minimum 30% tax rate for discretionary trust distributions to beneficiaries over the age of 18.
Discretionary trusts allow for trust income to be distributed on an entirely discretionary basis. This means distributions can be artificially split between different people in lower tax brackets so that the tax paid on the overall amount is much less than it would otherwise be.
Under Labor’s policy, individuals and businesses will still be able to use discretionary trusts.
However, the new minimum 30% rate on distributions will make sure discretionary trusts cannot be used as a vehicle for aggressive tax minimisation.
Non-discretionary trusts – such as special disability trusts, deceased states and fixed trusts – will not be affected by this change. Labor’s policy will also not apply to farm trusts and charitable trusts.
Exemptions will apply under the new arrangements, such as for people with disability, to ensure people suffering genuine hardship are not affected. The Commissioner will be given discretionary powers to manage this.
Labor says that it will consult with the ATO, Treasury and tax experts on the implementation of this policy.
Labor will also provide an additional $55m per year to the ATO to boost its current trust anti-avoidance activities. This policy has been costed by the independent Parliamentary Budget Office. It is estimated to raise $4.1b over the forward estimates to 2021/22 and $17.2b over the medium term.
Shadow Treasurer, Mr Chris Bowen, says the ATO has provided further evidence that wealthier Australians are using trusts to stay in lower tax brackets.
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Martin van der Saag
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Norman Ruan
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“A Labor Government would introduce a standard minimum 30% tax rate for discretionary trust distributions to beneficiaries over the age of 18.”
About the author
Cayle Petritsch - Director & Wealth Advisor
Cayle Petritsch, Director and Wealth Advisor, works with our existing clients who have recognised the importance of business owners making strategic financial choices not only for their company, but for their personal finances too.
Cayle saw a great opportunity to expand North Advisory’s services into SMSF/superannuation, personal wealth management, asset protection services and other crucial personal finance facets that business owners need to consider.
His approach to wealth management allows you to receive highly personalised wealth advice. Working closely with Marius, Cayle understands the unique needs of every client, from their lifestyle and business goals to their retirement plans.
Key Takeaways
A key proposal by Labor was to impose a minimum 30% tax on discretionary trust distributions to adult beneficiaries.
This was intended to curb income-splitting tax advantages through discretionary trust structures.
The minimum tax would not apply to all trust types — important exemptions were included.
Special disability trusts, deceased estates, fixed trusts, farm and charitable trusts were excluded, reflecting an attempt to protect genuinely non-commercial or vulnerable arrangements.
Discretionary trusts remain available under the proposal — but with higher baseline taxation on distributions.
The change targeted perceived tax-avoidance, not the existence of discretionary trusts themselves.
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Frequently Asked Questions
What change did Labor propose for discretionary trusts?
Labor proposed a minimum 30% tax rate on distributions from discretionary trusts to beneficiaries over 18 — aiming to limit the use of trusts for tax minimisation.
Why did Labor want to introduce a minimum tax on discretionary trust distributions?
The policy was intended to reduce the ability of higher-income families and individuals to split income through discretionary trusts and thereby pay less tax than they otherwise would.
Would all types of trusts be affected by this proposal?
No. Non-discretionary trusts — including special disability trusts, deceased estates, fixed trusts, farm trusts and charitable trusts — were explicitly excluded from the minimum tax rule
Would individuals and businesses still be able to use discretionary trusts?
Yes — discretionary trusts would still be available, but the minimum tax rate on distributions was designed to restrict aggressive tax-minimisation strategies using trust distribution flexibility.
What support measures did the proposal include?
Labor planned additional funding for the ATO (approximately $55 million per year) to strengthen trust anti-avoidance activities and compliance.
Does the article confirm this change became law?
No — the article describes it as a proposed change that would be introduced under a Labor Government (not confirmed as law in the article).
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