Family trusts used by farmers and small businesses have emerged as a potential flashpoint in next week’s federal budget, with the National Farmers’ Federation warning changes could have unintended consequences across regional Australia.
The Albanese government is considering new tax settings targeting discretionary trusts as part of a broader package expected to include changes to negative gearing and capital gains tax, as it looks to reshape housing affordability and wealth distribution.
While the final design remains unsettled, multiple proposals under consideration would impose a minimum tax rate — widely reported at around 30 per cent — on trust distributions.
For many in agriculture, the concern is not theoretical.
NFF president Hamish McIntyre said farmers were already dealing with significant economic pressure, and warned poorly targeted reforms could add to the strain.
“Farmers are facing waves of uncertainty due to weakened supply chains,” he said.
“We’re concerned that poorly targeted reforms in the Budget could create more fiscal challenges for farmers, instead of fewer.”
The warning comes as global instability, particularly in the Middle East, continues to push up fuel and input costs, placing additional pressure on farm margins and regional supply chains.
Trusts are a legal structure used to hold and distribute income or assets among beneficiaries. In Australia, discretionary trusts allow income to be distributed flexibly among family members, with each recipient taxed at their own marginal rate.
That flexibility has made trusts a common tool not just for wealth management, but for succession planning in family-run enterprises.
For farming families, where assets are often land-rich but cash-poor, trusts provide a mechanism to transition ownership across generations without forcing asset sales.
Mr McIntyre said that role needed to be recognised in any reform.
“For years, the NFF has been vocal that changes to tax settings, ranging from Capital Gains Tax to trusts, must recognise that family farms rely on these structures to support farm succession from one generation to the next,” he said.
“Any move to change these structures must not adversely impact hard-working family farms and potentially put the future of multigenerational businesses at risk.”
The idea of tightening trust taxation is not new. It formed part of Labor’s disasterous 2019 election platform, which proposed a minimum tax on discretionary trust distributions along side changes to capital gains tax and negative gearing – the same trip being pushed in this budget.
Australia is often described as an outlier internationally due to the degree of discretion allowed in trust structures, particularly around income distribution, which critics argue enables tax minimisation strategies.
Supporters, particularly in small business and agriculture, counter that trusts are a practical and legitimate way to manage risk, plan succession and maintain family ownership. Most rural specialist accounting firms will recommend a family trust structure for larger farming operations.
According to the Australian Taxation Office, more than one million Australians are involved in trust structures generating hundreds of billions of dollars in income, spanning everything from small family operations to large managed investment funds.
A similar proposal considered by the Howard government in the late 1990s was ultimately abandoned, in part due to the difficulty of designing rules that captured high-wealth tax minimisation without sweeping up small businesses.
That tension remains at the centre of the current debate, with farmers warning broad-based changes could disproportionately affect regional businesses already dealing with volatile conditions.
Beyond trusts, the NFF is also calling for measures to support investment and productivity, including making the instant asset write-off permanent.
Mr McIntyre said the sector was looking for long-term policy settings rather than short-term relief.
“In January, we provided the Federal Government with a detailed brief of investment asks,” he said.
“We don’t want sugar hits, we want long-term change. We especially want to see Australian agriculture less vulnerable to global shocks through improving our sovereign capability.”
The federal budget will be handed down on May 12.
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