Key Takeaways:
- A family trust is a discretionary trust where the trustee decides how to share income among family beneficiaries.
- For 2026/27, adult beneficiaries pay 0% to 45% plus Medicare levy, while minors face rates up to 45%. Companies pay 25% or 30%, and undistributed income or outsider distributions attract 47% tax.
- Trustees must sign distribution resolutions by 30 June, or the trustee may pay tax at 47%.
- Individual beneficiaries keep the 50% CGT discount, and adults can still claim the $700 low income tax offset.
The family trust tax rate in Australia depends on who receives the income, not the trust itself. Many Australian families use a family trust to share income and protect assets across generations. However, the tax result changes sharply between adults, children, companies, and the trustee.
Adult beneficiaries pay their own marginal rates, whereas undistributed income attracts a 47% tax rate. Additionally, the lowest personal bracket fell to 15% on 1 July 2026, which affects distribution planning. This guide covers current rates, minor beneficiary rules, capital gains, distribution tax, and trustee compliance duties.
What is a Family Trust?
A family trust is a discretionary trust that holds assets and income for members of one family. The trustee decides each year how to distribute income among beneficiaries, i.e., spouses, children, and relatives. Hence, the family trust tax rate depends on each beneficiary’s personal tax bracket, not the trust itself.
Formally, a trust only becomes a “family trust” for tax purposes after it lodges a family trust election. Australian families mainly use this structure for tax planning, asset protection, and passing wealth between generations.
Who is Eligible for a Family Trust?
Almost any Australian individual or family can set up a family trust with the right legal documents. Each trust needs a settlor, a trustee, an appointor, and a list of eligible beneficiaries. The trustee can be an adult individual or a company, provided neither is bankrupt nor disqualified.
Beneficiaries usually include spouses, children, grandchildren, relatives, and related companies within the family group. However, the family control test requires family group control when the trustee makes the election. Particularly, families where one earner pays higher tax rates gain the most from this structure.
How Do You Set Up A Family Trust?
Setting up a family trust takes careful planning because the trust deed controls every future decision. Most families work with a lawyer or tax agent to prepare documents and register the trust.
Stamp duty rules and setup costs differ between states, so local advice saves money and prevents costly errors. Follow these steps to set up a family trust and meet the Australian Taxation Office rules.
1. Choose the Trustee and Appointor:
The trustee manages trust assets, keeps records, and decides each year’s trust distribution. Families often pick a corporate trustee because a company offers stronger asset protection and easier succession.
Meanwhile, the appointor holds the power to remove and replace the trustee at any time. Hence, many parents name themselves as appointors to keep long-term control over the trust.
2. Prepare the Trust Deed:
The trust deed sets the rules for beneficiaries, trustee powers, and how the trustee can distribute income. A well-drafted discretionary deed lets the trustee stream capital gains and franked dividends separately.
Also, the deed should define the trust income clearly, since unclear wording often triggers ATO disputes. Therefore, a qualified lawyer should draft or review the deed before anyone signs it.
3. Settle the Trust:
The settlor creates the trust by giving the trustee a small gift, usually $10. Generally, the settlor should be someone outside the family who never benefits from the trust.
Afterwards, the trustee signs the deed, and the trust legally exists from that settlement date. Some states charge stamp duty on the deed, so pay it within the required timeframe.
4. Apply for a TFN and ABN:
Subsequently, the trustee applies for a trust TFN through the Australian Business Register website. The trust needs its own TFN to lodge a tax return and receive investment income.
If the trust runs a business, the trustee can apply for an ABN in the same application. Without a TFN, banks and investment bodies may withhold tax at the top marginal rate.
5. Open a Trust Bank Account:
The trustee opens a separate bank account in the trust’s name to hold all trust money. Mixing personal and trust funds weakens asset protection and creates serious compliance problems with the ATO.
Moreover, clean bank records make it easier to prove each distribution during an audit. Afterwards, the trustee can transfer cash, shares, or property into the trust under its deed.
6. Make a Family Trust Election:
A family trust election tells the ATO which test individual anchors the trust’s family group. The election gives access to franking credits and easier rules for carrying forward trust losses.
However, any distribution outside the family group then attracts family trust distribution tax at 47%. Most trustees lodge the election with the trust tax return, ideally after advice from a tax agent.
7. Plan Distributions Before 30 June:
Each year, the trustee must decide how to distribute income before 30 June. Good tax planning sends income to beneficiaries with a lower tax rate, which reduces total family tax.
Each beneficiary then reports that share as taxable income in their own personal tax return. Otherwise, the trustee pays tax on undistributed income at higher tax rates, currently 47%.
How Is a Family Trust Taxed in Australia?
For tax purposes, a family trust usually works as a flow-through entity rather than a taxpayer. The trust lodges its own tax return, but trust tax normally falls on the beneficiaries instead. Each year, trustees can decide how to distribute income to family members before 30 June.
Each beneficiary then adds their share of trust income to their personal tax return. Accordingly, the family trust tax rate equals each beneficiary’s own marginal rate, not a fixed trust rate. This flexibility lets Australian families shift income to members in lower tax brackets and minimise tax legally.
What Happens to Undistributed Trust Income?
When the trustee leaves income undistributed, the trustee must pay tax on that amount instead. Under section 99A, the ATO taxes this income at the top rate of 47%, including the Medicare levy.
The same outcome often applies when the trustee misses the 30 June resolution deadline for the income year. Hence, trustees usually distribute all income of the trust to avoid this heavy tax payable.
What Is the Family Trust Tax Rate in 2026?
No single family trust tax rate exists, because the rate of tax depends on who receives income. Adults pay personal tax rates, minors face penalty rates, and undistributed income attracts 47% tax. Company beneficiaries pay the corporate rate of 25% or 30%, depending on the company’s status.
From 1 July 2026, the lowest adult bracket also fell from 16% to 15%. Similarly, payments outside the family group trigger family trust distribution tax at 47% for electing trusts.
| Who Receives the Income | Tax Rate (2026/27) |
|---|---|
| Adult resident beneficiary | 0% to 45%, plus 2% Medicare levy |
| Minor beneficiary (non-excepted income) | Up to 45% on the entire amount |
| Company beneficiary | 25% or 30% |
| Trustee (undistributed income) | 47% |
| Recipient outside the family group | 47% family trust distribution tax |
Overall, smart tax planning strategies use these different rates to reduce the overall tax bill.
Tax Rates for Adult Beneficiaries:
Adult beneficiaries pay tax on their share at the standard marginal tax rates for the 2026/27 income year.
| Taxable Income | Tax on This Income |
|---|---|
| $0 to $18,200 | Nil |
| $18,201 to $45,000 | 15c for each $1 over $18,200 |
| $45,001 to $135,000 | $4,020 plus 30c for each $1 over $45,000 |
| $135,001 to $190,000 | $31,020 plus 37c for each $1 over $135,000 |
| $190,001 and over | $51,370 plus 45c for each $1 over $190,000 |
These rates exclude the 2% Medicare levy, which most Australian residents also pay. For example, a trustee can distribute $45,000 each to two adults instead of $90,000 to one.
Each adult then pays $4,020, so the family pays $8,040 rather than $17,520 before offsets. That difference shows the tax savings when income moves to family members in lower tax brackets.
Tax Rates for Minor Beneficiaries and Excepted Income:
Minor beneficiaries under 18 on 30 June face higher rates on unearned trust income. The ATO’s rules stop parents from shifting large distributions to children for lower tax.
| Unearned Income (Resident Minor) | Tax Rate |
|---|---|
| $0 to $416 | Nil |
| $417 to $1,307 | 66% of the excess over $416 |
| Over $1,307 | 45% of the entire amount |
However, excepted income, e.g., wages or income from a deceased estate, attracts normal adult rates. Unfortunately, ordinary family trust distributions rarely qualify, so most children receive only $416 tax-free. Also, the trustee often pays tax on behalf of beneficiaries under 18 through the trust return.
Can Beneficiaries Claim the Low Income Tax Offset?
Adult beneficiaries can claim the low income tax offset when their taxable income remains at or below $66,667.
| Taxable Income | Offset Amount |
|---|---|
| $37,500 or less | $700 |
| $37,501 to $45,000 | $700 minus 5c for each $1 over $37,500 |
| $45,001 to $66,667 | $325 minus 1.5c for each $1 over $45,000 |
| Over $66,667 | Nil |
The ATO applies it automatically after each beneficiary lodges their personal tax return. With the offset, an adult’s effective tax-free threshold rises to about $22,866 in 2026/27.
Conversely, minors cannot use the offset against unearned income such as trust distributions. Their offset only reduces tax on excepted income, e.g., wages from a part-time job.
How Does a Trust Distribution Work?
A trust distribution happens when the trustee allocates trust income to one or more beneficiaries. Firstly, the trustee checks the trust deed to confirm which beneficiaries can legally receive income. Secondly, the trustee signs a written resolution by 30 June that names each beneficiary’s share.
This resolution makes beneficiaries presently entitled, so the family trust tax rate follows their marginal rates. Afterwards, the trustee can pay the money in cash or record it as an unpaid entitlement. Moreover, beneficiaries must actually benefit, since the ATO targets paper distributions under section 100A rules.
How Are Capital Gains Distributed From a Discretionary Trust?
When a discretionary trust makes a capital gain, the trustee can stream it to chosen beneficiaries. The trust deed must allow streaming, and the trustee must make beneficiaries specifically entitled.
Individual beneficiaries then apply the 50% CGT discount on assets the trust held for at least 12 months. Conversely, company beneficiaries cannot use this discount, so they pay tax on the full gain. If nobody receives the gain, the trustee pays 47% tax without any discount.
What Is Family Trust Distribution Tax?
Family trust distribution tax applies when an electing trust distributes income outside its family group. The family group includes the test individual, close relatives, and certain related companies or trusts. The ATO charges this tax at 47%, and the trustee pays it rather than the recipient.
Unfortunately, many trustees trigger this tax by mistake, e.g., through distributions to cousins or business partners. Hence, this tax can push the effective family trust tax rate well above normal personal rates. Therefore, trustees should check the family group carefully before each distribution and keep records.
What Are the Tax Advantages of a Family Trust for Australian Families?
A family trust can provide several tax advantages when families manage it within the ATO’s rules. Chiefly, the trustee can split income among adult members in lower tax brackets each year. This flexibility lowers the effective family trust tax rate compared with one person earning everything.
Besides, individual beneficiaries keep the 50% CGT discount on assets held for at least 12 months. A family trust election also gives access to franking credits and easier trust loss rules. Further, a bucket company caps tax at 25% or 30% on income families want to retain.
How Do You Manage a Family Trust Correctly?
Managing a family trust correctly starts with reading the trust deed before every major decision. The trustee should plan distributions in May or June, using each beneficiary’s expected taxable income. Afterwards, the trustee signs the distribution resolution by 30 June and stores it safely.
Also, the trustee should pay distributions into each beneficiary’s own account rather than redirecting the money to parents. Moreover, the trustee must avoid distributions outside the family group after making a family trust election. Finally, an annual review with a registered tax agent keeps the trust compliant with current tax law.
What Are the Trustee’s Compliance and Tax Return Duties?
The trustee must lodge a trust tax return every year, even when the trust earns little income. The return lists each beneficiary’s share, their TFN, and any tax the trustee pays. Self lodgers usually face a 31 October deadline, whereas tax agent clients often receive later dates.
Additionally, closely held trusts must report beneficiary TFNs to the ATO under TFN withholding rules. Without a quoted TFN, the trustee withholds tax at 47% from that beneficiary’s distribution. Similarly, the trustee should keep resolutions, bank statements, and minutes for at least five years.
Conclusion
The family trust tax rate ultimately depends on each beneficiary’s personal situation, not one fixed figure. Adults pay marginal rates, whereas minors, outsiders, and undistributed income face much higher charges. Consequently, careful planning before 30 June decides how much tax the whole family pays each year.
The 15% bracket from 1 July 2026 also makes lower-income adult beneficiaries slightly more tax efficient. Nevertheless, poor records, paper distributions, and missed deadlines can quickly erase these tax savings. Therefore, speak with a registered tax agent before setting up or changing your family trust structure.