Discretionary trusts built much of their appeal around one mechanic: the trustee's ability to stream a trust capital gains distribution to the beneficiary who'd pay the least tax on it, often combined with the 50% CGT discount to bring the taxable amount down first. From 1 July 2027, the discount is gone for individuals and trusts. A new 30% minimum tax floor replaces it - and from 1 July 2028, a separate minimum tax on trust distributions layers on top. If your family trust holds assets with unrealised capital gains, the planning window between now and 1 July 2027 is real. This is not a drill.

This article focuses specifically on the family trust CGT planning questions: how capital gains flow through trusts after the discount disappears, who can still absorb gains most tax-effectively, whether realising gains before 2027 makes sense, and what trust deed amendments might be needed before the rules change.

How Discretionary Trusts Handle Capital Gains: The Streaming Framework

Under current law, when a discretionary trust makes a capital gain on an asset held for more than 12 months, it can apply the 50% CGT discount to reduce that gain at the trust level. The trustee then has two options for distributing the discounted gain:

First, include it in the trust's net income and distribute it as ordinary income to beneficiaries. Second - and more tax-efficiently - stream the capital gain specifically to one or more beneficiaries under section 115-C of the ITAA 1997. Streaming allows the beneficiary to apply their own CGT concessions against the gain, and it requires the trustee to make a specific capital gains resolution in the distribution minutes.

The streaming mechanism itself survives the 2027 changes. The trustee will still be able to allocate the capital gain to specific beneficiaries. What changes is what happens to the gain once it arrives at the beneficiary. The 50% discount won't apply to gains accruing from 1 July 2027 onwards. Instead, the gain is indexed for CPI and the resulting real gain is taxed at the beneficiary's marginal rate - subject to a 30% floor.

That 30% minimum is the structural shift. Under the current system, streaming a capital gain to a beneficiary with a low marginal rate - say, an adult child with minimal income, or a corporate beneficiary at 25% - could produce an effective tax rate well below 30% on the gain. From 1 July 2027, no matter who receives the gain, the minimum tax rate is 30%.

The 30% Minimum Tax on Trust Distributions: What It Actually Means

There are two separate measures here and they're easy to conflate. Let me separate them clearly.

Measure 1 (from 1 July 2027): The 50% CGT discount is replaced by CPI indexation plus a 30% minimum tax on real capital gains. This applies to all capital gains made by individuals and trusts. The effect on a capital gain distributed from a trust to a beneficiary: the beneficiary pays at least 30% on the indexed gain, regardless of their marginal rate. A beneficiary with no other income still pays 30% on the real capital gain.

Measure 2 (from 1 July 2028): A separate 30% minimum tax on the taxable income of discretionary trusts broadly. This is levied at the trustee level. The trustee pays 30% on the trust's taxable income, and beneficiaries receive non-refundable tax offsets for the trustee's tax. The aim: prevent trusts from distributing to zero-tax beneficiaries and paying no tax at all.

For planning purposes, the first measure (CGT discount removal) arrives 12 months earlier and is the more immediate concern. The second measure (trustee-level minimum tax) compounds it from 2028 onwards. If your trust holds assets with significant unrealised gains, you're racing against two deadlines - 1 July 2027 to crystallise gains under the existing discount, and 1 July 2028 when the broader distribution tax kicks in.

Streaming Capital Gains Post-2027: Who Can Still Absorb a Gain Most Tax-Effectively?

The 30% floor changes the streaming question but doesn't eliminate it. There are still meaningful differences between beneficiaries in terms of how much total tax is paid on a distributed capital gain.

Beneficiaries with capital losses. A beneficiary who has capital losses from other investments can use those losses to offset the distributed gain before the 30% minimum tax applies. Capital losses reduce the taxable gain, and the minimum tax applies only to the net amount after losses. Streaming to a loss-carrying beneficiary remains highly effective - this is unchanged by the 2027 reforms.

Beneficiaries with lower marginal rates above 30%. If a beneficiary's marginal rate is 32.5% and the gain would otherwise be taxed at 47% in the hands of a high-income earner, streaming still saves tax even though both pay above the 30% floor. The streaming decision isn't binary - it's about comparing marginal rates above the floor.

Corporate beneficiaries. A bucket company receiving trust distributions is taxed at the corporate rate (25% for base-rate entities, 30% for others). Under the new regime, the 30% minimum tax on the capital gain means a high-rate corporate beneficiary no longer saves tax over an individual on the gain itself. But a small business company at 25% is below the 30% floor - the minimum tax means there's no longer any advantage in streaming a capital gain to a 25% rate company. The gain will be taxed at 30% regardless.

Beneficiaries with no other income. Currently, streaming a gain to an adult beneficiary with no income can result in an effective rate of zero or close to it after the 50% discount and the low-income offset. Under the new rules, the 30% minimum tax applies regardless of the beneficiary's other income. The zero-rate streaming play disappears.

My view: the most important streaming decision after 2027 isn't about marginal rates below 30% - it's about capital losses and about keeping gains out of the hands of beneficiaries taxed above 47%. The planning toolbox shrinks but doesn't empty.

Realise Gains Pre-2027 vs Post: The Timing Decision

This is the question I'm getting most from clients with trusts holding long-held property or share portfolios.

The transitional rules help significantly. Assets held by trusts on 30 June 2027 are deemed to have been sold and reacquired at market value on 1 July 2027. Gains accrued before that date retain the 50% CGT discount treatment. You don't have to actually sell before 1 July 2027 to protect the pre-2027 gain component.

That said, actually selling before 1 July 2027 and realising the entire gain under the current rules can still be the right call in specific circumstances:

  • If the post-2027 gain is expected to be much larger than the pre-2027 gain, selling everything before the changeover locks in the discount on the full gain rather than just the pre-2027 portion.
  • If your trust has capital losses from other assets, 2026-27 may be the last year you can fully utilise those losses against gains taxed under the 50% discount regime.
  • If a beneficiary has unusually low income in 2026-27 (parental leave, career change, a gap year), streaming the gain to them before 1 July 2027 produces a better outcome than waiting until 2028 when the 30% trustee-level minimum tax also applies.
  • If the trust is holding an asset you were planning to sell anyway, the tax cost of selling a year early is lower than the transaction costs and uncertainty of waiting.

The case against selling pre-2027: you pay tax earlier than necessary, potentially limiting reinvestment capacity. If the asset continues to appreciate strongly and you weren't planning to sell for 5+ years, triggering the gain now just to use the discount isn't automatically correct. Run the time-value comparison properly.

Trust Deed Review: What Needs Checking Before 1 July 2027

The streaming mechanism requires the trust deed to permit it. Under section 115-C, a trustee can only specifically allocate a capital gain to a particular beneficiary if the trust deed gives the trustee that discretion. Many older trust deeds - especially those drafted before the streaming rules were introduced in 2011 - may not have explicit streaming provisions.

If your trust deed doesn't specifically permit the trustee to stream different classes of income to different beneficiaries, you're limited to distributing the net income of the trust proportionally. That means you lose the flexibility to allocate the capital gain to the beneficiary who can absorb it most tax-effectively.

Getting a deed amendment done is not complicated in most cases - it's a deed of variation and typically takes a few weeks. But it needs to happen well before the capital gain event, not on the day of the distribution resolution. If your trust holds assets with significant unrealised gains and you're planning to realise them in 2026-27 or 2027-28, check the deed now.

Separate from streaming, also check:

  • Whether the deed lists all intended beneficiaries explicitly or uses a broad class description. The ATO's section 100A risk is heightened when distributions are made to beneficiaries with no genuine nexus to the trust's purpose.
  • Whether the trustee has clear discretion to resolve the income distribution before 30 June - not just before lodging the return. The distribution resolution must be in place by midnight on 30 June each year.
  • The definition of "income" in the deed - whether it aligns with trust law income and tax law income, or creates discrepancies that need professional guidance to manage.

The 30% Minimum Tax and Low-Income Beneficiaries: The Planning Window That's Closing

One of the most commonly used strategies with discretionary trusts is distributing income to adult children, spouses with lower incomes, or other beneficiaries who pay little or no tax. The trust earns the income at the business or investment level, and the beneficiary pays tax at their personal rate - often well below the rate of the highest-income family member.

The 30% minimum tax on trust distributions (from 1 July 2028) directly targets this. Once it's in effect, the trust's taxable income will be taxed at the trustee level at 30%, and beneficiaries receive credits rather than taxable income at their marginal rate. For a beneficiary currently paying 0% or 19% on trust distributions, that's a significant increase.

This measure is still subject to consultation and drafting. The details of what counts as "taxable income" for this purpose, how the credits interact with beneficiary tax positions, and what exclusions apply are not fully settled. But the policy direction is clear and the government has legislated the start date.

The implication: if your trust has been using low-income family members to absorb distributions at minimal tax, the window for that strategy closes in 2028. Planning for 2027-28 (the year before the trustee-level minimum tax starts) is particularly important - it may be the last year to distribute under the current individual beneficiary rates without the trustee-level overlay.

The Interaction with Section 100A: Don't Create a New Problem While Solving the Old One

Any trust distribution planning involving low-income beneficiaries needs to be assessed against the ATO's section 100A position. Section 100A applies where a beneficiary is made presently entitled to trust income as part of a scheme where another party will benefit from that entitlement - and the primary purpose is to reduce tax.

The ATO's 2022 ruling and guidance on section 100A is the current framework, and the risk is real. Distributing to an adult child who immediately lends the money back to the trustee (creating a "trust entitlement parking" arrangement) is a classic 100A pattern. Distributing to a beneficiary who doesn't actually receive the funds and doesn't have any genuine connection to the trust's activities is another.

As the CGT discount disappears and the trustee-level minimum tax approaches, there's a risk that advisers and trustees push harder on beneficiary selection to save tax - and create 100A exposures in the process. The ATO has been clear that the crackdown on these arrangements continues regardless of the legislative changes. Better planning means finding arrangements that are genuinely tax-efficient and genuinely commercially motivated, not manufacturing entitlements for people who have no real relationship with the trust's activities.

Frequently Asked Questions

Can a family trust still stream capital gains to specific beneficiaries after 1 July 2027?

Yes, with conditions. Section 115-C of the ITAA 1997 permits a trustee to specifically allocate capital gains to particular beneficiaries. Streaming will still work after 1 July 2027, but the gain will be taxed under the new indexation and 30% minimum tax regime. The trustee's discretion over who receives the gain remains - the change is what happens to that gain once it's distributed.

What is the 30% minimum tax on trust distributions and when does it start?

The government has proposed a 30% minimum tax on discretionary trust income starting from 1 July 2028. It's levied at the trustee level, with non-refundable credits flowing to beneficiaries. This is a separate measure from the CGT discount removal, which starts 1 July 2027. Both measures apply to discretionary trusts, but at different points in time.

Should I sell trust assets before 1 July 2027 to lock in the 50% CGT discount?

It depends on the asset, your beneficiaries' income positions in 2026-27, and whether the gain is worth crystallising now. The transitional rules preserve the 50% discount for gains accrued before 1 July 2027 even if you don't sell, so you don't have to sell to protect those gains. But if you were planning to sell anyway and your beneficiaries are in a good tax position this year, selling in 2026-27 can be the right call.

Does my trust deed need to be amended to handle capital gains streaming post-2027?

Possibly. Older trust deeds without explicit streaming provisions may limit the trustee's ability to allocate gains to specific beneficiaries under section 115-C. Have your deed reviewed before realising any significant capital gain. Deed amendments need to happen well in advance of the distribution resolution.

Who is the best beneficiary to absorb a capital gain from a discretionary trust after 2027?

After 1 July 2027, the 30% minimum tax floor means the gain is taxed at at least 30% regardless of who receives it. The optimal beneficiary is still someone with capital losses to offset against the gain, or someone whose marginal rate on the indexed gain is between 30% and 47%. The optimisation decision doesn't disappear - it just operates above a 30% floor.

Are there any trust structures that are exempt from the 30% minimum tax?

Fixed trusts, widely held trusts, superannuation funds, charitable trusts, special disability trusts, and testamentary trusts in place before 12 May 2026 are excluded from the proposed 30% minimum tax. Family discretionary trusts and typical investment trusts are within scope. Unit trusts with fixed entitlements may also be excluded if they meet the relevant definitions.

The most dangerous thing a family trust holder can do right now is assume that the trust's existing distribution strategy still makes sense after 2027. It probably doesn't. The 50% discount was load-bearing for most discretionary trust CGT strategies - remove it and the whole optimisation framework needs to be rebuilt. That work is worth doing now, before the asset is sold and certainly before 30 June 2027, when the transitional gain-splitting rules become critical. Get the deed in order. Map your beneficiaries' likely income positions. Know what the 30% floor means for your specific trust's assets. Then make the realisation decision with actual numbers.

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Andrew Romano is a Chartered Accountant and SMSF Specialist based in Sydney. He works with high-income individuals, business owners and investors on tax planning, structuring and self-managed super funds.

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Family Trust Holding Assets? Let's Review Your CGT Strategy.

The 2026 Budget changes the entire CGT planning framework for discretionary trusts. If your trust holds property, shares, or business assets with unrealised gains, the next 12 months are when the planning decisions matter most. Book a Strategy Session and we'll map out your position across the transitional rules and the new regime.

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