Family Trusts Avoid Tax Reform—for Now, Says Minister
By Luisa Capezio
The federal government has ruled out any immediate changes to the tax treatment of family trusts, despite growing calls for reform from economists, unions, and the Australian Taxation Office.
Appearing on Sky News on Thursday morning, Minister for Financial Services Daniel Mulino said the government is focused solely on its current tax agenda, which includes the controversial Division 296 superannuation reforms.
“There’s no plans to look at anything other than the tax policies that we have on the agenda at the minute,” Mulino said.
His comments come amid speculation that family trusts which are long used by wealthy Australians to distribute income across family members, could be next in line for reform. According to Treasury, 1.7 million Australians received a combined $67 billion in trust distributions in 2024, with more than 10% of taxpayers reporting trust income in FY21.
The Australian Taxation Office has raised concerns about professionals, including lawyers and doctors, using trust structures to divert income to spouses and children, potentially breaching anti-avoidance laws such as Part IVA and Section 100A.
Meanwhile, the Grattan Institute has proposed sweeping changes to the tax system, including a flat tax rate of 24–30% on trust distributions and a reduction in the capital gains tax discount. The think tank estimates that reforms to family trusts, combined with changes to superannuation concessions and retirement earnings, could raise $20 billion annually (Grattan Institute).
Australian Unions has also called for a minimum 25% tax on disbursements from family trusts, arguing that the current system disproportionately benefits high-income earners.
Despite these pressures, Mulino said the government’s priority remains the revised Division 296 super tax, which will apply to individuals with super balances above $3 million. The updated framework includes:
- No tax on unrealised gains.
- Indexed thresholds at $3 million and $10 million.
- Tiered tax rates: 30% on earnings between $3–10 million, and 40% above $10 million.
- A deferred start date of 1 July 2026.
Mulino described the reforms as “a complicated set of changes” aimed at addressing superannuation tax concessions in a holistic and consultative manner.
While family trusts remain untouched for now, tax experts warn that reform may be inevitable. Advisers are urging clients to review their Family Trust Elections (FTEs) and Interposed Entity Elections (IEEs) to avoid triggering the 47% Family Trust Distribution Tax (FTDT), and to ensure compliance with ATO enforcement trends.