Family trust changes 2028: the restructure playbook

Last Updated: July 2026

The family trust changes 2028 announced in the Federal Budget have generated headlines about the “death of family trusts”. For the second time in a week, the headlines are misleading.

One thing to be clear about upfront: the legislation for this reform hasn’t been written yet. What exists today is the budget announcement and the policy direction, and trust taxation is an area where the drafting gets genuinely complex, so the detail will matter and some of it may shift through exposure drafts and consultation. We’re watching it closely and we’ll update this playbook as the rules firm up. But the direction is clear, and the worst position to be in when the legislation lands is uninformed. The goal here is to arm you with what the announcement says, who it actually affects, and the decisions worth preparing now, so you can move with confidence rather than reacting from a standing start.

The reform is meaningful, but it’s narrowly targeted, doesn’t start until 1 July 2028, and comes with a three-year rollover window that lets families restructure without triggering CGT or income tax consequences. For most families with adult beneficiaries on high marginal rates, the trust still does most of what it always did. For families relying on splitting income to low-rate beneficiaries, and for anyone running the classic trust-plus-bucket-company setup, the maths needs rerunning.

This article is the playbook. It walks through what actually changed, why the trust and bucket company strategy is dead, what replaces it for business owners, who’s actually affected, and the six-step decision framework for the rollover window. For the broader budget context, Federal Budget 2026: what it actually means for you is the pillar post.

What actually changed (the 60-second version)

From 1 July 2028, discretionary trusts pay a minimum 30% tax on taxable income at the trustee level. Non-corporate beneficiaries who receive distributions get a non-refundable credit for the tax already paid by the trustee.

What that mechanism does:

• For beneficiaries on marginal rates above 30%, the outcome is broadly neutral. They were going to pay more than 30% anyway. The trust pays 30% upfront, they receive the credit, and they top up the difference.
• For beneficiaries on marginal rates below 30% (children, low-income partners, retired parents), income splitting becomes far less effective. The historical benefit of streaming income to a 16% rate beneficiary gets capped at 30%.
• The credit is non-refundable, so an excess credit can’t be refunded to a low-rate beneficiary the way franking credits can be.
• Corporate beneficiaries don’t receive the credit at all, which is what kills the trust-to-bucket-company strategy. More on that below.

What didn’t change:

• Fixed trusts are not affected.
• Super funds are not affected.
• Charitable trusts are not affected.
• Existing testamentary trusts are not affected.
• The three-year rollover relief window from 1 July 2027 to 30 June 2030 allows restructuring without CGT consequences.

That’s the entire reform as announced. The headline “family trusts are finished” is wrong. What’s changed is the effectiveness of income splitting to low-rate beneficiaries, and the viability of the bucket company as the destination for trust income.

The trust and bucket company strategy is dead

For the past couple of decades, the standard aspirational wealth play in Australia ran like this: build investments inside a discretionary trust, distribute the surplus income each year to a bucket company, cap the tax at 30%, and let the company compound the retained earnings. It was a cornerstone of smart wealth building for high earners and business owners. We used it ourselves and built it for a lot of Pivot clients.

The budget kills it. From 1 July 2028, the trust pays 30% at the trustee level, and a corporate beneficiary doesn’t receive the non-refundable credit for that tax. On the announcement as written, income flowing from a trust to a bucket company can be taxed at the trustee level and again inside the company, an effective rate of up to around 60% on the same dollars. That’s not a tweak to the strategy. That’s a dead strategy.

Two important qualifiers. First, this is exactly the kind of mechanism where the final legislation could include carve-outs or transitional treatment, and we’re hopeful it does, but nobody should build a plan on hope. Second, the bucket company itself isn’t dead, only the trust-to-company income pipeline is. A company funded directly (by business profits, capital contributions, or its own investment earnings) still pays a flat 30%, still builds a franking pool, and still pays tax-effective dividends in your lower-income years. The vehicle survives. The route into it changes.

For business owners, the structure that steps up is the company stack: an operating company that runs the business, a holding company above it, and an investment company that accumulates the surplus profits. Profits move up the stack as inter-company dividends rather than through a trust, get invested at the 30% corporate rate, and build franking credits for tax-effective drawings later. On our modelling, a business generating $500,000 a year of profit reinvested over ten years ends up around $3.2 million under the old trust-and-draw approach against roughly $4.85 million through the company stack. That’s about $1.65 million more from identical profit, purely from structure. This isn’t the deep dive (the stack has its own setup costs, compliance and rules that are easy to get wrong), but if you run a business through a trust today, this is the conversation to have before the rollover window opens.

Who’s actually hurt by this reform

If you sketch the typical Pivot family (both partners on top-bracket marginal rates, adult children either working or studying, a discretionary trust holding investments and possibly business equity), the answer is “barely”.

The trust still does:

• Asset protection (separation of personal assets from business or litigation risk)
• Estate flexibility (controlling who gets what, when)
• Streaming of different income types (franked dividends, capital gains, ordinary income)
• Distribution flexibility across adult beneficiaries when one partner has a lower-income year (parental leave, sabbatical, between jobs, business sale year)

What changes: the historical default move of distributing $20k–$30k a year to low-income adult children for the tax saving, and the default move of sweeping surplus income into a bucket company. That’s where the reform bites.

Where the reform genuinely hurts:

• Families with multiple low-income adult beneficiaries (e.g., university-age kids, retired parents) who were systematically receiving distributions to use up their lower tax brackets
• Single-income high-earner households where the only viable beneficiary is the non-working spouse and the trust was the only way to access dual brackets
• Trusts where the entire structural rationale was bracket arbitrage, with no asset protection, estate, or streaming value to fall back on
• High-earning households and business owners using the trust-to-bucket-company flow to cap tax at 30%, which is effectively neutralised as covered above

If your situation is in that hit zone, the playbook below matters. If it isn’t, the playbook is mostly about confirming the trust still earns its keep.

Playbook step 1: stop and assess before you act

The single most expensive move in the first six months after the announcement is restructuring before understanding whether you need to.

The rollover relief window runs from 1 July 2027 to 30 June 2030. That’s three full years. There is no first-mover advantage. Restructuring in 2027 versus 2029 produces the same CGT-neutral outcome under the rollover provisions, and the legislation isn’t even drafted yet. What we’re doing personally, and what we’re advising clients to do, is get clarity on the rules as they firm up while having the paths forward mapped and ready, so the move happens from a position of preparation rather than panic.

What is genuinely time-sensitive:

• Don’t trigger a CGT event by transferring trust assets out before the rollover window opens (1 July 2027). That’s a normal CGT event under current rules and would be taxed accordingly.
• Don’t wind up the trust before you’ve modelled the alternatives. Winding up usually triggers CGT on appreciated assets.
• Don’t make distribution decisions for the next two financial years based on the future reform. Distribute based on current rules.

Playbook step 2: map what’s actually in the trust

You can’t make a restructure decision without an honest inventory. The next 6 to 12 months are for getting this organised.

For each trust, list:

• Trustee (individual or corporate trustee)
• Appointor (who controls the trustee)
• Beneficiary class (named individuals, classes, charities)
• Assets held (shares, ETFs, managed funds, property, business interests, cash)
• Cost base for each asset (the embedded gain is what makes restructuring expensive normally)
• Annual income generated (franked dividends, unfranked, capital gains realised, interest)
• Existing distribution pattern (who’s typically received how much over the past 3–5 years)
• Whether a bucket company is connected (and the loan balance to that company, if any)

This audit is the input to every decision that follows. Most families haven’t sat down with this list in years.

Playbook step 3: stress-test the trust under the new rules

Take the trust’s typical annual taxable income, say $80,000, and run two scenarios:

Scenario A: both beneficiaries already above the 30% bracket. If the trust currently distributes $40k to a top-bracket partner and $40k to a partner earning $100,000 (where every extra dollar is already taxed at 30% plus Medicare), the after-reform outcome is essentially identical. The trustee pays 30% upfront ($24k), both partners receive credits, and each tops up the small difference to their marginal rate, exactly as they effectively do now. Net household tax: virtually unchanged.

Scenario B: hit-zone distribution pattern. If the trust currently distributes $20k each to two university-age children with no other income, the reform bites hard. Pre-reform, those distributions attract essentially zero tax, because the small amount of tax in the 16% bracket is wiped out by the low income tax offset. Post-reform, the trustee pays 30% on the $40k ($12,000) and the children receive non-refundable credits they can’t use against income that wasn’t taxable anyway. The household goes from paying roughly nothing on that $40k to paying roughly $12,000 a year. That’s the bracket-arbitrage play, closed.

If your scenario looks like A, the trust still works. If it looks like B, the question is whether the rest of the trust’s value (asset protection, estate planning, streaming) justifies the new cost. For the underlying frame on structures and when each makes sense, saving tax with the right investment structure is the baseline read.

Playbook step 4: decide whether to restructure (and into what)

The reform makes company structures significantly more interesting as an alternative or complement to the trust. The live options:

Option 1: Keep the trust as-is. If the stress test in step 3 shows the trust still pulls its weight, this is the cleanest answer. Most reform commentary forgets that maintaining the existing structure is a valid choice.

Option 2: Restructure into a holding company. Move trust assets into a company structure during the rollover window. Income gets taxed at the flat 30% company rate (or 25% for base-rate entities). The trade-off: no 50% CGT discount at the company level (which is partly addressed by the broader CGT reform anyway). The post-budget company structure becomes attractive because the trust’s 30% floor and the company’s 30% rate are now aligned, but the company has cleaner administration and more predictable retained-earnings treatment.

Option 3: Hybrid, keep the trust, run the company as a standalone vehicle. The trust keeps doing the jobs it’s still good at (asset protection, streaming, estate flexibility) while a company accumulates new wealth in parallel, funded directly rather than via trust distributions. For business owners, this points to the operating-holding-investment company stack covered earlier. The key admin trap in any company arrangement is Division 7A. Loans from a company to a connected trust or shareholder are heavily regulated, and the ATO’s Division 7A page is the starting point. Get this wrong and you have a deemed dividend at the worst possible time.

Option 4: Distribute and wind up. If the trust holds assets that are easy to distribute (cash, easily transferable shares) and the existing beneficiaries can absorb the income at their marginal rates, winding the trust up during the rollover window is clean. The rollover relief means no CGT trigger on the wind-up. This rarely makes sense if there’s meaningful illiquid value (business equity, property) inside.

Playbook step 5: rethink your bucket company strategy

If you have a bucket company, the post-budget thinking shifts most right here.

Pre-budget, the bucket company was the tax-cap mechanism at the end of the trust pipeline: distribute surplus income to the company, cap the rate at 30% (or 25% for base rate entities), retain and reinvest. As covered above, that pipeline is dead, because the corporate beneficiary gets no credit for the trustee-level tax.

What the bucket company becomes instead is an accumulation vehicle in its own right, funded by business retained earnings, other income streams, or capital contributions rather than trust distributions. On that footing, it still offers real advantages:

• A predictable 30% rate on income earned and retained within the company itself
• Long-term compounding within the corporate structure without the trust’s new constraints
• A growing franking pool to pay tax-effective dividends to shareholders in lower-rate years (retirement, career breaks, between ventures)
• Asset segregation from operating business risk

Many families will find a company becomes the primary wealth-holding entity post-2028, working as a standalone accumulation vehicle or as the investment layer of a company stack, with the trust playing a smaller, more specialised role.

Playbook step 6: time the restructure inside the rollover window

The rollover window is 1 July 2027 to 30 June 2030. The three-year length is deliberate. There’s no race.

Reasons to restructure earlier in the window:

• The new structure starts compounding under cleaner rules sooner
• Adviser and accountant capacity in the early window (less queue)
• Removes the planning-window decision from your annual workflow sooner

Reasons to restructure later in the window:

• The final legislation will be drafted and settled. Given how complex trust drafting gets, there may be technical adjustments (or carve-outs) worth waiting for.
• Your family situation may shift (a child starts working, a business sells, a partner returns to work). Restructure once you know the new beneficiary picture.
• Some asset values may shift in ways that affect the optimal structure (the ATO’s general guidance on trusts is the rule reference)

For most families, the middle of the window (late 2028 to mid-2029) is the likely sweet spot. Legislation settled, but enough runway left to execute properly.

Common mistakes to avoid

Mistake 1: Winding up before the rollover window opens. That’s a normal CGT event. Wait for 1 July 2027.

Mistake 2: Restructuring without addressing the operating business. If the trust holds business equity, the operating company, the trust, and the bucket company all need to be thought about together. Restructuring one in isolation usually creates new problems.

Mistake 3: Ignoring Division 7A on existing bucket company loans. Any loan from a bucket company to the trust or to a shareholder needs to be on a compliant Division 7A loan agreement with minimum repayments. The ATO is consistently the heaviest enforcer here. The tax mistakes to avoid in Australia post covers the recurring traps.

Mistake 4: Restructuring purely for tax with no asset protection or estate logic. A well-designed structure does multiple jobs. If you’re restructuring only to chase a 1% saving, the admin and advice cost usually exceeds the benefit.

Mistake 5: Acting before the legislation is drafted. As of mid-2026, the legislation hasn’t been written. There will be exposure drafts and consultations, and with trust law the detail genuinely matters. Prepare the paths forward now, move when the rules are settled.

The wrap

The family trust changes 2028 are real but narrow. They cap the tax benefit of streaming income to low-bracket beneficiaries and they kill the trust-to-bucket-company pipeline that sat at the centre of the old aspirational playbook. They don’t touch the structural value of the trust. Asset protection, estate flexibility, streaming, and distribution flexibility all continue.

For most Pivot families, the trust still earns its keep. For families whose trust was essentially a bracket-arbitrage tool, and for business owners running the trust-and-bucket-company play, the reform forces a redesign, with the company stack the leading candidate to take over the accumulation job. Either way, the legislation is still to come, the detail will be complex, and the three-year rollover window gives plenty of room to prepare the paths now and move once the rules are settled.

The investors who get hurt are the ones who wind up trusts in the first six months out of panic. The investors who do best use the runway to redesign the structure around what each entity now actually does best.

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Disclaimer: The information contained in this article is general in nature and does not take into account your personal objectives, financial situation or needs. Therefore, you should consider whether the information is appropriate to your circumstances before acting on it, and where appropriate, seek professional advice from a finance professional.