What a 2026 Family Trust Tax Hike Could Mean for Investors
Published
July 16, 2025
Published
July 16, 2025
If you’re among the one million Australians who use a family trust to manage investments, protect assets or plan your wealth succession, you’ve probably heard the calls for hiking tax rates on family trusts in the 2025-26 financial year.
With the most recent budget now out in the open, it seems family trusts are safe from the ATO’s hands—for the time being. There’s still a push for tax hikes to take place across the country’s near-one million trusts and the consequences for not only individuals, but for the greater economy, is a very interesting thought to behold.
Let’s talk about what a family trust tax hike could mean, not just for structures but for investment strategy, generational planning and the broader future of private wealth in Australia.
Tax Reforms to Fill the ATO’s Pockets
Tax reform carries the idea that a more level playing field will be achieved, by combing through the wealthier portion of the population and redistributing that wealth (or just storing it in government coffers). But at its worst, it confuses people, especially those who are simply using family trusts to protect their hard-earned.
On paper, and as explained by the Australian Financial Review, trusts are flow-through structures—the income they generate is taxed in the hands of beneficiaries, typically at their marginal rates. That means flexibility for investors: distributing capital gains to adult children, dividends to a family company or interest income to a lower-earning spouse. It’s not wrong, it’s not tax-dodging, it’s simply how many small businesses and family-orientated investment portfolios are run.
But from Treasury’s POV, it’s also where billions in potential tax revenue “leak out” each year. Close to $60 billion was distributed from trusts in 2024 alone. This, apparently, is unacceptable.
Is 2026 the Year for Trust Tax Hikes?
Right now, Treasury are in a sort of consultation phase. The Productivity Commission is preparing recommendations, while Treasury is considering options to patch up the budget, fund tax cuts and plug holes left by EV uptake (electric vehicle drivers might expect a road user charge to replace fuel duties), an ageing population and the clean energy transition.
Nothing is set in stone but the groundwork is being laid, and 2026 looms as a potential turning point. With inflation cooling and budget pressures growing, taxation benefits across investment (and electric) vehicles have high potential of being placed on the chopping block.
What’s at Stake for Investors?
If you’re running a family trust today, the potential for tax rate hikes really adjusts the reasons why one would set up such an investment vehicle. A tax rate increase on trusts would create:
Less flexibility on income distribution
The appeal of trusts has always been about flexibility, legally distributing income to where it’s taxed most efficiently (whether to a spouse or a child). A flat rate—as an example—removes that option, forcing everyone to pay the same, regardless of who they are.
Higher accountant bills
The added complication for those who’ll need to revise their trust structure is more time spent at the accountant’s office. As if tax bills won’t be big enough, the added hours for taxation planning will only deteriorate the very income those tax-savvy investors and individuals are trying to protect.
The biggest risk: a flight of capital overseas
If the government pushes too hard on family trusts, we might see high-net-worth individuals and private capital quietly move offshore. Singapore, Dubai and even Italy—known tax havens—offer friendlier tax rules and more straightforward policies.
It’s the reactive tax strategies from Treasury—those that hamstring the country’s wealthy—which can force the people we need most on our shores to look elsewhere for a place to store their intergenerational wealth.
What Should Investors Do Now?
While alarm bells aren’t yet ringing, the focus on family trust tax hikes presents a solid reason to plan ahead.
By reviewing your current structure and understanding where your trust income is going—and what your exposure could be should their be a tax increase—you’ll be better prepared for the worst outcome.
A chat with your advisor is always a good idea when uncertainty strikes. Buy them a coffee or book in a formal appointment if you’re worried about your hard-earned capital—created out of smart investment in shares, residential or commercial property—being deteriorated by prospective Treasury tax rules.
And, as always, keep an eye on headlines. Information, particularly when uncertainty is about, is key.
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