Labor has quietly planted a new tax trap in the budget papers: from July 1, 2028, distributions from discretionary trusts to bucket companies would face a minimum effective tax rate of 51 per cent. The change would make the bucket company highly tax inefficient and hit one of the most common family tax planning tools in the country.
The move is aimed squarely at the hundreds of thousands of people who use discretionary trusts and bucket companies to split income with a non-working spouse or a university-age child and reduce tax. For those families, the planning strategy has long been simple: direct income where the tax bill is lower. Under the proposed rule, that arithmetic changes sharply.
The budget papers are where the change is revealed, and they describe discretionary trusts and bucket companies as vehicles used for family income splitting and tax reduction. A bucket company is a company that receives trust income and, under the current setup, can help lock in a lower tax outcome. Labor’s plan would remove much of that advantage by setting the floor at 51 per cent, a level that would erase the appeal of the arrangement for many users.
The friction in the proposal is clear. The government is not abolishing trusts, but it is targeting the mechanism that makes them useful for tax minimisation. That means the policy lands not on a narrow set of high-end tax structures, but on a broad class of family arrangements that have become routine for people with trusts, especially those using them to direct money to a spouse who does not work or to children at university.
July 1, 2028 gives households and advisers time to react, but it also sets a hard finish line. By then, the bucket company will become highly tax inefficient under the planned minimum effective tax rate, and the people using these structures will have to decide whether the tax saving is still worth the complexity. For many, that answer is likely to be no.
