What Is Treasury's Proposed Minimum Tax on Discretionary Trusts? Why Self-Employed Borrowers Should Act Before 31 July 2026

Key takeaway: Treasury opened a formal consultation on a minimum tax for discretionary trusts on 8 July 2026, with submissions closing 31 July 2026. Nothing is law yet — but self-employed borrowers who receive income through family trusts should start reviewing how a minimum tax could change their post-tax income and borrowing power.

Key dates at a glance

What is Treasury actually proposing?

Treasury is consulting on introducing a minimum rate of tax on distributions from discretionary trusts, as part of the tax system changes flagged in the 2026–27 Federal Budget. The consultation paper, open from 8 to 31 July 2026, seeks feedback on the design of the measure — which means the details that matter most to families, such as thresholds, rates and carve-outs, are not yet settled. That is precisely why the consultation window matters: this is the stage at which small business and industry voices can still shape the final rules.

Discretionary (family) trusts are one of the most common structures used by Australian small business owners — restaurants, trades, professional services, property investors — for asset protection and succession planning as well as tax flexibility. A minimum tax on trust distributions would reduce the benefit of spreading income across family members in lower tax brackets.

Why are small businesses worried?

Because the change lands on cash flow, not just tax returns. Australian Broker reported on 9 July 2026 that trust tax fears are deepening among small businesses, with COSBOA — the Council of Small Business Organisations Australia — warning about the measure's impact on family enterprises. For a household that runs its business and holds its investments through a family trust, a minimum tax on distributions means less after-tax income each year, even if nothing about the underlying business changes.

"When trust distributions are taxed differently, the income a lender can count changes too — self-employed borrowers should get ahead of that conversation now."

What this means for self-employed borrowers: the MPFG view

Borrowing capacity is assessed on income after the tax system has done its work. Many self-employed applicants present income to lenders as a mix of trust distributions, company profits and director salaries — and if a minimum trust tax changes the after-tax value of that mix, serviceability calculations change with it. Our suggestions: do not rush into restructuring before the rules are final; speak with your accountant about how the proposal would apply to your trust; and if the measure affects you, consider lodging a submission before 31 July 2026. If a bank has already declined you because trust income is 'too complex' to verify, that is a documentation problem rather than an income problem — Alt Doc lending using an accountant's letter or BAS statements is built for exactly these structures. See MPFG's Alt Doc and commercial loan products for options designed around self-employed income.

FAQ

What is the minimum tax on discretionary trusts being proposed in Australia?

It is a Treasury proposal, announced through the 2026–27 Budget process, to apply a minimum rate of tax to distributions from discretionary trusts. The design details are the subject of a public consultation running from 8 to 31 July 2026, so the final shape of the measure is not yet fixed.

Will a trust tax change reduce my borrowing capacity?

It could, indirectly. Lenders assess serviceability on your after-tax income, and many self-employed borrowers receive part of their income as trust distributions. If those distributions are taxed at a higher minimum rate, net income falls, which can reduce the amount a lender will approve. The actual impact depends on the final legislation.

Can I still get a home loan if my income comes through a family trust?

Yes. Banks can be conservative with trust income, but non-bank lenders routinely work with trust and company structures. Alt Doc options — using an accountant's letter, BAS or business bank statements — allow self-employed applicants with trust income to verify serviceability without standard payslips.

This article is general information only and does not constitute financial or credit advice. All applications are subject to credit assessment by MPFG Capital (ACL 553698).