Builders use family trusts because construction is an industry where the claim can arrive five years after the last invoice, where the bank wants a personal guarantee before it lends, and where the family home is often quietly standing behind the working capital. The trust is the structure that separates the business that carries that risk from the assets that would otherwise be exposed to it.
That is the case Master Builders Australia put to Treasury on 31 July 2026, in its submission on the proposed thirty per cent minimum tax on discretionary trusts. Whether it succeeds is a question for the design of the legislation. But the underlying explanation of why the structure took hold in this industry is worth understanding on its own, because a lot of builders inherited the arrangement from an accountant years ago and have never had it explained.
What a discretionary trust actually is
Discretionary trust
A legal structure in which a trustee holds assets or income for a defined group of beneficiaries. The defining feature is discretion. The trustee decides each year how income is allocated among the beneficiaries, within the terms of the trust deed. No beneficiary has a fixed entitlement, which means no beneficiary owns a share that a creditor can pursue.
That last point does most of the work. Because a beneficiary has no fixed entitlement, someone suing a beneficiary cannot reach the trust’s assets. There is no individual ownership to claim against, and nothing for the beneficiary to sell.
Ownership and control are held apart. The trustee holds and controls. The beneficiaries may benefit. For a family business, that separation is the whole point.
How many construction businesses are structured this way
Master Builders puts the figure at 20.1 per cent of construction businesses, or about one in five. It told Treasury that just over 90,000 construction industry trusts were operating in 2023-24 and that the number had likely passed 93,000 by mid 2025. It also argues the true exposure is larger, because that count captures trusts trading directly and not the private company groups in which a trust sits as a shareholder.
Treasury sees a smaller picture. Its consultation paper puts the share of active small businesses using a discretionary trust structure at under fifteen per cent, and the government has said more than ninety per cent of small businesses will not be affected.
Both can be true. Construction can sit well above the national average without changing the national average much. Which of those two numbers is the right one to design policy around is the live question, because it determines whether a sector specific carve out is warranted.
Reason one: the claim arrives years after the job
A builder’s exposure does not end at handover. Statutory warranties implied into residential building contracts run for years after completion, and defect claims routinely surface long after the job is closed, the retention released and the profit distributed.
That is an unusual liability profile. Most small businesses know within a trading year whether a job has gone wrong. In construction, a business can be sued over work performed by a version of itself that no longer resembles the one facing the claim.
A structure that separates the trading risk from accumulated family assets is a rational answer to that, and it is why accountants have recommended it in this industry for decades.
Reason two: this industry fails more often than others
The risk is not theoretical. TGB analysis of ASIC insolvency statistics shows 3,435 construction companies entered external administration for the first time in 2025-26. That was a fall of about 4.5 per cent on the previous year and the first annual decline in five years, which is genuinely good news. It still left construction as the largest single share of company insolvencies in the country.
Set against several hundred thousand construction businesses, the overwhelming majority trade through, adjust and keep building. Both things are true at once, and anyone telling you only the first half is selling something.
But an owner deciding how to structure a business is not pricing the average outcome. They are pricing the tail. In an industry with this failure rate, a structure that keeps the family home out of the trading entity is not aggressive planning. It is ordinary prudence.
“Trust structures are not a tax loophole, they are a long-established way for small builders to protect their assets in an industry exposed to insolvency, legal disputes and significant financial risk,” Master Builders Australia chief executive Denita Wawn said.
Reason three: the family is already standing behind the business
Construction businesses run on uneven cash. Money arrives in stages, costs land ahead of claims, and the industry runs on thinner cash buffers than most industries carry. Master Builders told Treasury that owners are routinely required to commit family wealth to support working capital, bonding, insurance and finance requirements, and that personal guarantees are standard rather than exceptional.
“Small businesses operate with thinner cash buffers, face significant income volatility, and carry substantial commercial risk. Trust structures help them manage that risk and protect both their livelihoods and their families,” Ms Wawn said.
The submission also makes a conceptual argument that is easy to miss. A trading business run through a trust does not earn its income from one person’s labour. It earns from goodwill built over years, brand, systems, staff, premises, plant, working capital deployed at risk and the commercial risk of running the enterprise. An employee is paid for labour alone. Master Builders’ position is that taxing trust income as though it were wages misreads what the income is compensating.
Succession is the other half. A trust deed can pass control of a family business to the next generation without selling anything, which matters in an industry where the business, the plant and the reputation are usually the same asset.
What a trust does not do
This is where a lot of builders carry an inflated idea of the protection they have bought, so it is worth being blunt.
A trust does not stop a bank taking a personal guarantee, and most lenders take one. It does not protect a director from insolvent trading liability or director penalty notices. It does not shield assets that were moved into it after a claim became foreseeable.
It does not remove regulatory obligation either, because the licence sits with the trustee, not the trust, and the trustee entity carries the financial requirements, the insurance eligibility and the statutory warranties.
And it does not permit unlimited income splitting. Master Builders itself made this point to Treasury, arguing that where trust income is mainly a reward for one person’s personal effort, the personal services income rules already attribute that income back to the individual regardless of how the trustee distributes it, and Division 7A already prevents private company profits being extracted tax free.
Where the argument is contested
It would be dishonest to present the structure as having no tax benefit. It does. A profitable year distributed across family members in lower brackets produces less total tax than the same income taken by one person, and that has been lawful and deliberately available for decades.
The government’s case is that this produces an outcome unavailable to someone earning the same money as wages, and that a minimum rate at the trustee level closes the difference without preventing anyone from using a trust for any other reason. Treasury has also pointed to rollover relief for businesses that decide to restructure.
Master Builders’ answer is that the reform treats a risk management structure as though it were a tax structure, that existing integrity rules already handle genuine income diversion, and that the practical consequences for a licensed, insured, contracted building business have not been assessed.
Both arguments are about the same facts. They differ on what the structure is for.
What changes from 1 July 2028
Under the announced measure, trustees of discretionary trusts would pay a minimum thirty per cent tax on the taxable income of discretionary trusts from 1 July 2028, with non corporate beneficiaries receiving a non refundable credit for tax already paid by the trustee. Rollover relief is proposed for three years from 1 July 2027 to help businesses move out of a trust without an immediate income tax or capital gains bill. It does not cover state transfer duty.
The measure is not law. Treasury consulted on implementation between 8 July and 31 July 2026, no exposure draft has been released, and decisions about how a building business is structured are worth making on legislation rather than announcement.
“Undermining these protections without a practical transition pathway risks destabilising thousands of small builders and the projects they deliver. With around 20 per cent of the sector affected, we are talking about a systemic threat to the industry,” Ms Wawn said.
For builders, the useful move now is not to act but to understand what you have. Know which entity holds your licence, what assets sit inside your trust, and what a change of entity would trigger with your insurer and your bank. Those answers take time to assemble, and they are the ones that determine your options later, whatever the final design looks like against the pressures running through the industry.
Frequently asked questions
Because construction carries long tail liability, a high failure rate and heavy reliance on personal guarantees. A discretionary trust separates the entity carrying that risk from accumulated family assets, and allows flexible distribution of income that varies significantly year to year.
Master Builders puts it at 20.1 per cent, about one in five, with just over 90,000 construction industry trusts operating in 2023-24 and likely above 93,000 by mid 2025. Treasury’s consultation paper puts the figure across all active small businesses at under fifteen per cent.
No. It can limit which assets are exposed if a claim succeeds. It does not prevent claims, does not override personal guarantees, does not remove director liability for insolvent trading, and does not protect assets moved in after a claim became foreseeable.
Discretionary trusts are a long established and lawful structure. They do produce a tax benefit where income is distributed to beneficiaries in lower brackets, which is what the proposed reform targets. Master Builders’ position is that for construction the primary purpose is risk management and succession rather than tax.
If the measure proceeds as announced, trustees pay a minimum of thirty per cent from 1 July 2028 and beneficiaries receive a non refundable credit for that tax. Businesses can keep the trust and pay more, or restructure using rollover relief available for three years from 1 July 2027. The measure is not yet law and the design may change.
Sources: Master Builders Australia submission to Treasury, 31 July 2026, and media releases of 30 July and 7 August 2026. Treasury consultation paper on the minimum tax on discretionary trusts, 8 July 2026. Australian Taxation Office guidance on the announced measure. TGB analysis of ASIC insolvency statistics released 13 July 2026.
Last updated: 17 August 2026. The measure is not yet law and this article will be updated when an exposure draft is released.
This article is editorial commentary for industry professionals. It is not financial, tax, legal or structural advice. Speak to a qualified adviser about your own structure.
For more conversations with builders on structure, risk and running a durable business, listen to The Good Builder Podcast.
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