A plan to tax family trusts in Australia is drawing fresh scrutiny over how it would treat small business owners on modest incomes. Opposition lawmakers say the change could leave some modest earners paying far more than wage workers.
A small business owner earning $45,000 through a family trust could pay more than three times as much tax as an employee on the same income under the government’s planned trust tax, according to an exchange at a Senate inquiry on Friday, Nov. 6, 2026. The figures are in Australian dollars.
What was said at the trust tax inquiry?
Liberal Sen. Andrew Bragg asked Treasury officials whether a business owner earning $45,000 through a trust would pay double what a worker pays. Bragg, a member of the opposition Liberal Party, has been a vocal critic of the plan.
A senior Treasury official said she believed the answer was yes but added that she could point to many examples where the opposite is true. Her answer acknowledged that the outcome depends on each family’s circumstances.
The actual gap is larger than double because of how Australia’s income tax system is structured. The difference comes from the generous treatment of lower incomes for regular workers.
How would the trust tax work?
From July 1, 2028, the government plans to apply a minimum tax of 30% on the income of discretionary trusts, often called family trusts. The plan was announced as part of a broader overhaul of how wealth is taxed in Australia.
In these trusts, a trustee decides each year which family members receive the income. That flexibility allows income to be shared among relatives, often those who pay lower tax rates. Trusts are also widely used for asset protection and estate planning.
Under the trust tax, income would face the 30% minimum rate regardless of who receives it. The minimum rate is designed to limit the benefit of spreading income to family members with little other income.
Why would a trust owner pay more?
Australian workers pay no income tax on their first $18,200 and pay a low rate on income above that up to $45,000, and many also qualify for a tax offset for lower earners.
A minimum tax of 30% applies from the first dollar of trust income, so someone earning a modest amount through a trust could pay far more than a worker with the same income. That means the lowest earners using trusts face the biggest relative increase.
The gap narrows at higher incomes, where workers already pay rates closer to or above 30%.
Why does the government want a trust tax?
The Labor government says the change will curb tax minimization and make the system fairer, arguing that wealthy families have used trusts to shift income to relatives and lower their tax bills. Officials have said the change would raise significant revenue over time.
Supporters say the trust tax targets a loophole that has allowed some families to pay less than workers with similar incomes.
Who could be affected by the trust tax?
Many small businesses, farmers and family enterprises in Australia operate through trusts. Business groups and the opposition Coalition argue the change would hit everyday business owners, not just the wealthy.
Critics say small operators on modest incomes could see their tax bills jump, leaving less money to invest or hire. Some farmers and family businesses say they rely on trusts to manage uneven income from year to year.
The inquiry is examining the legislation before Parliament votes on it. The debate over the trust tax is likely to continue as the 2028 start date approaches.
