Beneficiary Tax Australia: What Trust Beneficiaries Need to Know for FY 2025-26

Published 17 July 2026 · 9 min read

If you're a beneficiary of a family trust, unit trust, or testamentary trust in Australia, the money you receive isn't just straightforward income — it carries specific tax treatment that can significantly affect your annual tax bill. In Australia, trusts don't pay tax on the income they distribute to beneficiaries. Instead, the beneficiaries are taxed on their share of the trust's net income at their own marginal rates. This principle of flow-through taxation means understanding beneficiary tax rules is essential to avoid nasty surprises at tax time.

How Trust Beneficiary Taxation Works in Australia

Trusts in Australia are not separate tax-paying entities in the same way companies are. Under Australian tax law, a trust is a flow-through vehicle — it distributes its net income to beneficiaries, and those beneficiaries include that share in their personal tax returns.

The trustee determines how much income is distributed to each beneficiary under the trust deed. This is typically done through a trust resolution signed before 30 June each year. The key principle is that once income is distributed (or a beneficiary has a present entitlement to it), that income is assessed in the beneficiary's hands — not the trust's.

If the trust retains income without distributing it, the trustee pays tax on that undistributed portion at the highest marginal rate (45% plus Medicare levy for FY 2025-26). This creates a strong incentive to distribute income to beneficiaries in lower tax brackets.

Beneficiary Tax Rates for FY 2025-26

Trust distributions to adult beneficiaries (18 years and over) are added to their other income and taxed at ordinary marginal rates. Here's how the FY 2025-26 rates apply:

Plus Medicare Levy of 2% applies. If you earn over $101,001 as a single without hospital cover, you may also pay the Medicare Levy Surcharge. Use our Medicare Levy calculator to see how these affect your total position.

Trust Distributions and Franking Credits

If the trust earns Australian dividends that come with franking credits, those credits flow through to beneficiaries. This is one of the most valuable tax benefits of investing through a trust structure.

Here's how it works: The company pays tax on its profits at 25% or 30% (depending on whether it's a base rate entity). When the trust distributes those dividends to you, you also receive the franking credits attached. You include both the cash dividend and the franking credit in your assessable income, then claim the franking credit as a tax offset.

For example, if you receive $700 in fully franked dividends with $300 in franking credits, your assessable income includes $1,000. If your marginal rate is 30%, you owe $300 in tax on that amount — exactly the value of the franking credits, so no extra tax is due. If your marginal rate is 16%, you'd receive a refund of $140.

Special Rules for Minor Beneficiaries

Trust distributions to minors (children under 18) are subject to special penalty tax rates in many cases. These rules, designed to prevent income splitting, apply to unearned income — including trust distributions.

There are important exceptions. Income from testamentary trusts (created by a deceased estate) is taxed at normal adult rates regardless of the child's age. Similarly, income a minor earns from their own labour — not trust distributions — is taxed at normal rates.

This means distributing trust income to minor children is usually tax-inefficient beyond $416 per child, unless it's a testamentary trust. Our take-home pay calculator can help you model the net effect of tax on different income levels.

Capital Gains Distributions: What Beneficiaries Pay

When a trust sells assets that have appreciated in value, the resulting capital gains can be distributed to beneficiaries. These gains retain their character — meaning if the trust held the asset for more than 12 months, the beneficiary gets the 50% CGT discount (for individuals; 33.33% for trusts that are not family trusts).

Beneficiaries report their share of the trust's net capital gain in their own tax return. This is particularly important for property trusts or managed funds that regularly distribute capital gains. You'll receive a trust tax statement (often called a AMIT statement for managed funds) showing the breakdown of income types, including franked dividends, capital gains, and interest.

Capital gains from a trust are not added to your income automatically — you include them based on the trust's tax statement. If the trust has applied the CGT discount before distribution, you don't apply it again. The discounted gain flows through to you.

Streaming: Allocating Different Income Types to Different Beneficiaries

Since 2010, Australian trust law has permitted "streaming" — allocating specific types of income to specific beneficiaries. This is a powerful tax planning tool. For example:

• Franking credits can be streamed to beneficiaries who can best use them (e.g., those with low marginal rates who'll get a refund)
• Capital gains can be streamed to beneficiaries with capital losses to offset
• Foreign income can be streamed to beneficiaries who have foreign tax credits available

The trust deed must allow streaming, and the trustee's resolution must clearly specify which character of income goes to which beneficiary. When done correctly, streaming can reduce the overall family tax bill significantly. See our income tax calculator to understand how different income types are taxed.

Complying vs Non-Complying Trusts

Most Australian trusts are "complying" trusts — they follow Australian tax laws and distribute income to Australian residents. Beneficiaries of complying trusts are taxed as described above.

A "non-complying" trust is one that doesn't meet Australian tax compliance standards. Distributions from these trusts are taxed very differently. If you receive a distribution from a non-complying trust, the ATO can tax you on the full amount received with no deductions available, and at the highest marginal rate. If you're a beneficiary of a foreign trust or an unlisted trust, it's essential to verify its complying status.

How to Report Trust Distributions on Your Tax Return

Receiving trust income is straightforward to report. You'll need:

• Your trust tax statement (provided by the trustee or fund manager) showing the breakdown of income types
• Report each component in the relevant section of your tax return — "Trust distributions" section for the total, plus specific items for franking credits, capital gains, foreign income, and tax-deferred amounts
• Ensure any tax-deferred distributions (which reduce your cost base rather than being income) are correctly classified

Many managed funds and property trusts provide an AMIT (Attachment for Managed Investment Trust) statement. These are now standard and include very detailed tax component breakdowns. The ATO pre-fills much of this information for most taxpayers in July and August each year.

If you use a tax agent, simply provide them with all trust tax statements. Most accounting software can import this data directly from the ATO's pre-fill service. Visit our salary sacrifice calculator to see how trust distributions interact with salary packaging arrangements.

Frequently Asked Questions

Do beneficiaries pay tax on trust distributions in Australia?

Yes. Trust distributions are generally included in the beneficiary's assessable income and taxed at their marginal rate. The trust itself does not pay tax on income distributed to beneficiaries — this is the core principle of flow-through taxation. However, if a trust retains income (doesn't distribute), the trustee pays tax at the highest marginal rate of 45% plus Medicare levy.

What is the tax rate for trust beneficiaries in FY 2025-26?

Trust beneficiaries pay tax at their personal marginal rate, which ranges from 0% (below $18,200) up to 45% (over $190,000) for FY 2025-26. Plus 2% Medicare levy. Minors (under 18) face higher penalty rates on unearned trust income — 66% on amounts between $417 and $1,307, and 45% on amounts above $1,307 — unless the distribution is from a testamentary trust.

How are franking credits handled for trust beneficiaries?

Franking credits flow through the trust to beneficiaries. The beneficiary includes both the cash dividend and the franking credit in their assessable income, then claims the franking credit as a tax offset. If your marginal rate is lower than the company tax rate (25% or 30%), you receive a refund for the excess franking credits.

What is income streaming in a trust?

Income streaming is the practice of allocating specific types of trust income (such as franked dividends, capital gains, or foreign income) to specific beneficiaries. This allows trustees to direct income to beneficiaries who can use it most tax-efficiently — for example, streaming franking credits to a low-income beneficiary who can claim a refund.

What happens if a trust doesn't distribute its income?

If a trust retains income rather than distributing it, the trustee pays tax on that retained amount at the highest marginal rate (45% plus Medicare levy). This is almost always higher than what beneficiaries would pay, so trustees typically distribute all net income each year. There are limited exceptions for certain capital gains reinvestment strategies.