What the 2026–27 Federal Budget Could Mean for Rural Trust Structures
The 2026–27 Federal Budget includes proposed changes to the taxation of discretionary trusts.
For rural and regional business owners, the important question may not simply be whether a trust is connected to a farming operation. The types of income earned through the trust, and how each income stream may be treated under the proposed framework, may also need to be considered.
This is particularly relevant for rural family trusts that receive a combination of primary production income, rental income, off-farm investment returns, share dividends or contract revenue.
Important information: The measures discussed in this article were announced as part of the 2026–27 Federal Budget but have not yet been legislated. Exposure draft legislation is expected before the end of 2026, and the details may change through the consultation and legislative process.Readers should obtain advice from their accountant, tax adviser, solicitor and finance adviser before making any decision based on the proposed measures.
The proposed 30% minimum tax rate
From 1 July 2028, taxable income distributed through a discretionary trust is proposed to be subject to a minimum tax rate of 30%, payable at the trustee level.
Around 350,000 active small businesses in Australia operate through discretionary trusts.
Treasury modelling indicates that approximately 60% may pay no additional tax under the proposed rules. The other 40%, or roughly 140,000 businesses, may be materially affected.
The proposed framework includes:
A minimum tax rate of 30%
A proposed commencement date of 1 July 2028
A proposed three-year rollover relief window from 1 July 2027 to 30 June 2030
These measures remain subject to legislation and may change.
How the proposed minimum tax may work
Under the proposed framework, the trustee would pay the minimum tax as a separate liability on the trust’s taxable income.
Where distributions are made to beneficiaries already paying marginal tax rates of 30% or more, the existing tax obligation may already cover the proposed 30% minimum.
The proposed change is expected to have the greatest impact where significant trust income has historically been distributed to beneficiaries on lower marginal tax rates.
Where a family group has an average or effective tax rate above 30% on income from the trust, the impact may be broadly nil.
Preliminary Treasury indications also suggest there may be no material impact for individual beneficiaries with income above $200,000.
However, the final operation of the measures will depend on the legislation ultimately enacted and the circumstances of the relevant trust and beneficiaries.
Trusts proposed to be excluded
The proposed minimum tax would not apply to certain trust structures.
The excluded trust types identified in the Budget material include:
Fixed trusts
Widely held trusts
Complying superannuation funds, including self-managed superannuation funds
Special disability trusts
Deceased estates
Charitable trusts
These structures are proposed to remain outside the scope of the minimum tax.
Income proposed to be excluded
Certain income types may also be excluded, even where they are earned through a discretionary trust that is otherwise within the proposed framework.
The excluded income types identified in the Budget material include:
Primary production income, including farming, grazing and cropping income
Income relating to vulnerable minors
Non-resident withholding tax amounts
Income from discretionary testamentary trusts in existence at 12 May 2026
For rural business owners, the proposed primary production income exclusion is particularly relevant.
However, it should not be assumed that every source of income earned through a rural family trust will automatically qualify for that exclusion.
The issue for mixed-income rural trusts
Based on the Treasury material released to date, the proposed primary production exclusion appears to apply to eligible primary production income within an in-scope trust on an income-stream basis rather than protecting the trust as a whole.
This means a family trust may receive primary production income that is proposed to remain excluded while also receiving other income that may be subject to the proposed 30% minimum tax.
A rural family trust may, for example, receive income from:
Farming
Grazing
Cropping
Rental properties
Off-farm investments
Share dividends
Contract work or services
Under the proposed framework, eligible farming, grazing or cropping income may qualify for the primary production exclusion.
Rental, investment, dividend or contract income may be treated differently and could remain within the proposed minimum tax framework.
The fact that a trust holds rural land or forms part of a primary production business may not mean every income stream flowing through it receives the same treatment.
The final position will depend on the enacted legislation and the circumstances of each trust.
Why income-stream analysis may be required
The treatment of mixed-income rural trusts is one of the key issues identified in the Bullagreen Brief.
A trust holding rural land or operating as part of a farming family group may still receive income streams that are treated differently under the proposed rules.
Rural family trusts may therefore need to be reviewed on an income-stream basis.
That review may include identifying:
Which income may qualify as primary production income
Which income comes from rental or investment activities
Whether the trust receives share dividends
Whether contract or service revenue is earned through the trust
Which income streams may fall within the proposed minimum tax framework
For many rural family trusts, this analysis may be necessary before the potential effect of the proposed reforms can be properly understood.
The proposed rollover relief window
The Budget measures also include a proposed three-year rollover relief window.
The proposed window would open on 1 July 2027 and close on 30 June 2030.
During this period, restructuring from a discretionary trust into a company or fixed trust may be available without triggering income tax or capital gains tax consequences.
After 30 June 2030, restructuring may trigger capital gains tax consequences.
The availability and operation of any rollover relief will depend on the final legislation, applicable eligibility requirements and the circumstances of the relevant structure.
The proposed planning timeline
Now to December 2026
Map the income streams within each potentially affected discretionary trust.
Identify which income streams may qualify as primary production income and which may fall within the proposed minimum tax framework.
Existing bucket company arrangements may also need to be identified for review.
January to June 2027
Exposure draft legislation is expected before the end of 2026.
Once further detail is available, more detailed restructuring analysis may be possible.
This may require coordinated tax, legal, accounting and finance advice.
1 July 2027
The proposed rollover relief window is scheduled to open.
The proposed capital gains tax and negative gearing reforms are also scheduled to commence from this date.
1 July 2028
The proposed minimum tax on in-scope discretionary trusts is scheduled to commence.
The first relevant returns would be expected to be lodged from July 2029.
30 June 2030
The proposed rollover relief window is scheduled to close.
Restructuring after this date may carry capital gains tax consequences.
All dates and arrangements remain subject to the final legislation.
Why this may require a coordinated conversation
Trust tax reform may sit across accounting, legal, finance, employment and succession planning.
A change to the structure of a rural business may affect:
Taxation
Property ownership
Existing lending facilities
Security arrangements
Business succession
Employment contracts
Workers compensation
Work health and safety obligations
Modern award compliance
Reviewing each area in isolation may not provide a complete view of the potential consequences.
The overall business and family position should remain central to the conversation.
The role of Bullagreen Finance
Where a proposed restructure involves transferring property or assets from a trust into a company, facilities secured against those assets may need to be reviewed.
A new company structure may require consideration of:
The proposed borrowing entity
Security arrangements
Existing lending facilities
Lender requirements
Covenant arrangements
Any lending outcome would remain subject to eligibility, lender criteria, assessment and approval.
Lenders may also require sufficient time to assess changes to borrowers, entities, assets and security arrangements.
The role of Bullagreen Rural Partners
Succession matters involving active trust structures may need to be considered alongside both the proposed trust minimum tax and proposed capital gains tax changes.
Any succession transaction currently being considered may need to be reviewed against the proposed 1 July 2027 capital gains tax commencement date.
Timing is only one consideration.
Family objectives, ownership arrangements, retirement needs, lending requirements and the broader operation of the business may also need to be considered before any decision is made.
The role of Bullagreen People and Performance
A restructure may also result in a change to the legal entity employing the business’s workers.
Where the employing entity changes, the business may need to review:
Employment contracts
Work health and safety obligations
Workers compensation coverage
Modern award compliance
These considerations can be overlooked when a restructure is driven primarily by tax or succession planning.
What rural trust operators can consider now
The proposed measures have not yet been legislated, and businesses should not make structural decisions based solely on the Budget announcement or this article.
However, rural business owners may begin preparing by understanding what currently sits within their trust structures.
An initial review may identify whether the trust earns:
Primary production income
Rental income
Investment income
Dividend income
Contract or service revenue
Other forms of non-primary-production income
Existing corporate beneficiary arrangements, lending structures and succession plans can also be identified for discussion with the appropriate professional advisers.
The proposed changes may extend beyond trust accounting.
Depending on the final legislation and the circumstances of the business, they may affect how the operation is owned, financed, managed and transferred to the next generation.
Want to discuss your broader business position?
Bullagreen brings finance, succession, business structure and people considerations into one coordinated conversation.
Where finance or lending is involved, Bullagreen Finance can help clients understand the potential lending considerations that may need to be reviewed alongside their independent tax, accounting and legal advice.
No change to a trust, ownership arrangement, lending structure or succession plan should be made without advice that considers the specific circumstances of the business and family group.
James Brouff works with farming families, agribusiness operators and rural business owners across regional Australia, helping bring the right professionals around the table for complex finance, business structure and succession conversations.
To discuss what the proposed changes could mean for your broader business position, reach out directly.
M: 0461 374 585 | E: james@bullagreen.au | W: bullagreen.au
General information only. This content does not constitute financial or credit advice and has been prepared without considering your objectives, financial situation or needs. Lending is subject to eligibility, lender criteria and approval.
Bullagreen Finance | Credit Representative 571331 | Australian Credit Licence 389328
The tax, trust and legal information contained in this article is general in nature and should not be relied upon as a substitute for independent tax, accounting or legal advice. The measures discussed were announced as part of the 2026–27 Federal Budget but had not been legislated at the time of publication. The proposals, commencement dates, exclusions, eligibility requirements and transitional arrangements may change through the consultation and legislative process.
Before acting, restructuring a trust or business, transferring an asset, changing a distribution arrangement, varying a finance facility or making a succession-planning decision, obtain advice from appropriately qualified tax, accounting, legal and finance professionals.
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