Tax Update | September 2026

Minimum Trust Tax at 30%: Draft Legislation Released

The next stage of the Federal Government’s proposed 30% minimum tax on discretionary trusts has arrived, with Treasury releasing exposure draft legislation and associated materials.

The release continues the Government’s implementation of measures announced in the 2026–27 Federal Budget, following the consultation paper released in July.

The exposure draft addresses a number of concerns raised during consultation. The underlying structure of the proposed regime, though, remains largely unchanged.

For many private groups, the main questions will be whether restructuring is required, whether the proposed election regime is suitable and how the new rules may interact with other parts of the tax system.

These issues will need to be considered well before the proposed commencement date of 1 July 2028.

What is the proposed 30% minimum trust tax?

The Government’s proposed 30% minimum tax on discretionary trusts represents a major change to the taxation of private groups.

First announced in the 2026–27 Federal Budget, the measure is intended to limit tax advantages associated with income splitting through discretionary trusts and is proposed to apply from 1 July 2028.

One of the most significant consequences relates to the use of corporate beneficiaries.

Under the proposed rules, the 30% trustee tax would not be creditable to a beneficiary that is a company. This could result in combined taxation of approximately 55% to 60% before the company’s profits are distributed to shareholders.

Following consultation in July 2026, Treasury has now released the first tranche of exposure draft legislation showing how the regime is intended to operate.

What has changed since the consultation paper?

Treasury has proposed several changes to the original framework.

Most notably, the draft introduces a new elective regime for existing discretionary trusts.

Rather than restructuring, certain trusts that exist on 1 July 2028 may be able to nominate fixed percentage entitlements for beneficiaries and effectively remain outside the minimum tax regime.

Treasury has also proposed:

• a broader definition of “fixed trust”
• expanded exclusions for testamentary trusts
• further detail on the roll-over relief available for affected trusts that choose to restructure.

Which trusts are within scope?

The minimum tax is proposed to apply to discretionary trusts. Fixed trusts would generally be excluded.

The exposure draft expands the definition of a fixed trust so that more commercial trust structures, including many unit trusts, may qualify where there are no material discretionary elements affecting beneficiaries’ rights or entitlements.

Managed investment trusts, attribution managed investment trusts and other widely held trusts are also not intended to be captured.

Deceased estates and discretionary testamentary trusts established for genuine testamentary purposes would generally remain outside the proposed regime.

How could discretionary trusts opt out?

One of the main developments in the exposure draft is a mechanism that may allow some existing discretionary trusts to effectively opt out of the minimum tax regime.

Instead of restructuring, a trust that existed on 1 July 2028 may be able to elect to nominate specific beneficiaries and, for tax purposes, fix their entitlements to the income and capital of the trust.

This may allow an eligible trust to remain outside the minimum tax regime without transferring assets to another entity and potentially incurring associated legal and stamp duty costs.

Under the draft legislation:

• each nominated beneficiary must receive the same percentage entitlement to both income and capital
• there is no limit on the number of beneficiaries that can be nominated
• beneficiaries may include individuals, trusts and certain companies
• partnerships and complying superannuation funds cannot be nominated.

The trade-off is a significant reduction in future discretion. Nominated beneficiaries and their fixed entitlements would generally be locked in, with changes permitted only in limited circumstances.

The election may be revoked by the trustee or may cease to apply if certain circumstances arise.

If that occurs, the trustee may be taxed at the top marginal tax rate in the year of revocation, including the loss of CGT discount and indexation for that year. The trust would then become subject to the minimum tax regime in later years.

What restructuring options are proposed?

Consistent with the Federal Budget announcement, the exposure draft includes temporary three-year roll-over relief for restructures undertaken between 1 July 2027 and 30 June 2030.

The proposed relief may allow discretionary trusts to transfer assets into a company or fixed trust without triggering immediate income tax consequences, including capital gains tax.

For businesses holding significant land, goodwill or other CGT assets through discretionary trusts, this may provide a pathway out of the proposed regime.

The roll-over only addresses income tax consequences. Potential stamp duty and other transaction costs may still apply and would need to be assessed before any restructure is undertaken.

Existing roll-overs, including the Division 122-A roll-over from a trust to a wholly owned company, are also expected to remain available.

What still needs to be considered?

While the core framework has now been released, a number of areas will require further consideration.

Taxpayers and advisers will need to assess how the proposed minimum tax interacts with existing tax rules, including:

• foreign income tax offsets
• withholding tax regimes
• franking credits
• international tax provisions
• existing trust group arrangements
• the use of losses across trust structures.

These issues may be particularly relevant for larger private groups and groups with cross-border investments or more complex trust structures.

What should discretionary trust clients do now?

If you operate through a discretionary trust, particularly one holding business assets, land or goodwill, this is a good time to understand how the proposed rules may affect your existing structure.

The legislation remains in draft form and may change through consultation. The options available to each trust will also depend on its structure, beneficiaries, assets and broader tax position.

Reviewing your arrangements early can help identify whether the proposed election may be suitable, whether restructuring should be considered and what other tax or transaction costs may need to be factored into your planning.