‘Income tax by another name’: Medicare levy adds 2% to minimum trust tax

According to Treasury’s Minimum tax on discretionary trusts consultation paper, “If no beneficiary is made entitled to trust income, the highest marginal rate plus the Medicare levy will continue to generally apply to the income in the hands of the trustee.”

“Consistent with other tax offsets, it will not be able to be used to reduce the Medicare levy,” the paper reads.

“If a trustee is assessed on part or all of the net income of a trust under either sections 99 or 99A of the ITAA 1936 and is liable to pay tax on all of the income so assessed at the top marginal tax rate, the trustee must pay the Medicare levy at two per cent of net income,” the ATO said on its website.

The Tax Office’s website reads: “In 2025–26, you don't have to pay the Medicare levy if your taxable income is equal to or less than the lower Medicare levy threshold.”

According to its figures, the lower threshold is $28,011, and the upper threshold is $35,013 until the two per cent Medicare levy is applied.

Upon the release of the consultation paper, Treasury said: “These reforms are all about making the tax system fairer by better aligning the tax rate on trust income with tax rates paid by workers, and will help fund income tax cuts for workers.”

“Creating a fairer tax system is a key aim of our ambitious tax reform package, along with making it easier to buy a first home and cutting income taxes for workers again and again,” it added.

Since its release, numerous tax experts have raised potential issues in the consultation paper, such as double taxation and impacts on bucket company viability.

The paper’s consultation period closes for submissions on 31 July 2026.