The tax raid on family trusts

Summary of The tax raid on family trusts

by ABC Australia

15m•May 17, 2026
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Overview of The tax raid on family trusts

This ABC News Daily episode explains what family trusts are, why they’re mostly used by wealthier Australians, and how the federal government’s new tax changes aim to reduce their value as a tax-minimisation tool. Tax expert Kristen Sobeck of the University of Canberra breaks down how trusts work, why discretionary trusts are the main target of reform, and why the changes are expected to raise more revenue while likely changing taxpayer behaviour.

Key Points

What a family trust is

  • A family trust is a legal structure that separates ownership of assets from the benefits those assets generate.
  • Trusts can hold:
    • property
    • shares
    • business assets
    • and even labour income
  • They’ve existed for centuries, with origins traced back to medieval England.
  • In practice, they are mostly used by wealthier households; Sobeck says the top 10% of wealthiest households receive the most trust income.

Why trusts are attractive

  • Trusts can be expensive to set up and maintain, often costing a few thousand dollars upfront plus annual fees.
  • Their value comes from tax flexibility:
    • income can be distributed among multiple family members
    • different beneficiaries can use their own tax-free thresholds
    • some income can be directed to a company taxed at a lower corporate rate
  • Sobeck describes trusts as a kind of “breakfast buffet” for tax, because users can mix and match the most favourable parts of personal and corporate tax systems.

The difference between fixed and discretionary trusts

  • Fixed trusts: distributions are predetermined.
  • Discretionary trusts: trustees can choose who gets income and when.
  • The government’s proposed changes focus on discretionary trusts, because they offer the most flexibility for tax planning.

The Government’s New Tax Change

What is changing

  • The government plans to impose a minimum 30% tax rate on income earned through discretionary trusts.
  • The reform is designed to better align tax on trust income with tax on wages.
  • Timing noted in the episode:
    • Capital gains: minimum 30% tax from July next year
    • Discretionary trusts: minimum 30% tax from July the year after

What the government says it will raise

  • Treasury estimates the change will bring in $4.47 billion by 2029–30.

Why the revenue forecast may be uncertain

  • Sobeck says wealthy trust users are likely to adjust their behaviour.
  • Some may:
    • keep using trusts for asset protection
    • shift assets or income outside trusts
    • leave businesses as standalone companies taxed at 25%
  • She suggests the revenue estimate may be optimistic, though the measure should still raise money.

Who is affected — and who is exempt

Likely affected groups

  • Wealthy families using trusts to split income across multiple beneficiaries
  • Professionals and business owners, including:
    • tradies
    • doctors
    • lawyers
    • consultants
    • farmers
    • some academics with side businesses

Farmers are exempt

  • The transcript notes that farmers were excluded after strong concerns they could be caught up in the changes.
  • The National Farmers Federation argues family farm trusts are tied to long-term family survival, retirement savings, and intergenerational transfer of farmland.
  • Sobeck sees the exemption largely as a political concession.

Main Arguments in the Debate

Supporters of the reform say

  • Trusts often allow wealthy households to pay less tax than wage earners with similar incomes.
  • The reform is about fairness: people with the same income should pay more similar tax.
  • It is a first step toward a more equitable tax system.

Critics of the reform say

  • The changes punish aspiration, business succession, and wealth creation.
  • Some argue families should be able to protect and pass on wealth they’ve built over generations.
  • Business owners worry higher tax burdens could discourage family succession planning.

Bigger Tax Reform Ideas Raised

Kristen Sobeck argues the trust reform is only a start and that Australia’s tax system needs broader renovation.

Longer-term reform priorities she mentioned

  • lighten the load on workers and personal income tax
  • reform the GST
  • push states and territories to reform property taxes
  • reduce tax on savings in the future

Bottom Line

  • Family trusts are not disappearing, but they may become less useful for tax minimisation.
  • The government’s reform is aimed at making trust income less tax-advantaged, especially for wealthy discretionary trust users.
  • The episode frames this as part of a broader debate about fairness, economic efficiency, and how Australia should tax wealth versus wages.