Draft legislation released for minimum tax on discretionary trusts…
Draft legislation has been released outlining proposed changes to the taxation of discretionary trusts, including an alternative option to restructuring.
On 3 September 2026, the Australian Government released exposure draft legislation for the proposed 30% minimum tax on discretionary trusts, which is proposed to apply from 1 July 2028.
The draft legislation builds on the consultation paper released in July 2026 and includes an alternative option that may allow eligible discretionary trusts to avoid the proposed minimum tax without undertaking a formal restructure.
This is consistent with the Government's own description of the exposure draft.
WHAT'S THE KEY ISSUE?
The proposed changes may affect how certain discretionary trusts are taxed in the future.
The July 2026 consultation paper indicated that rollover relief would be available to assist taxpayers who may wish to restructure a discretionary trust into another structure, such as a company or fixed trust.
However, restructuring can have tax and other consequences. While proposed rollover relief may address certain federal tax consequences, other costs, such as State or Territory stamp duty, may still need to be considered depending on the circumstances.
AN ALTERNATIVE TO RESTRUCTURING
The exposure draft introduces an alternative to restructuring for eligible discretionary trusts.
Under the proposed election, eligible discretionary trusts may elect to make fixed distributions to pre-nominated beneficiaries and, subject to meeting the relevant requirements, avoid the proposed minimum tax without formally restructuring the trust.
Because the election would not require a formal restructure, it is not expected to trigger State or Territory stamp duty.
The Australian Government also describes this election as an alternative to rollover relief that would not require a restructure.
HOW WOULD THE ELECTION OPTION WORK?
Under the proposed rules, discretionary trusts that are in existence at 1 July 2028 would be able to elect into a new tax regime.
Trusts that make the election and comply with the relevant requirements would not be subject to the proposed 30% minimum tax.
Key features include:
The discretionary trust must be in existence at 1 July 2028.
The trustee would need to make an Excluded Election Trust (EET) election to make fixed distributions to eligible pre-nominated beneficiaries.
Nominated beneficiaries may include individuals, eligible companies and eligible trust entities.
Nominated beneficiaries could generally only be added or changed in limited circumstances, such as where a nominated beneficiary passes away or there is a family breakdown.
The election could be revoked by the trustee or automatically revoked if distributions are made inconsistently with the election.
If the election is revoked, the trustee would be subject to the highest marginal tax rate plus Medicare levy in that income year, with the minimum trust tax applying in subsequent income years.
The election could be made in the 2028–29 financial year and would continue until revoked.
In effect, the proposed election would allow an eligible discretionary trust to operate in a manner similar to a fixed trust for tax purposes, without requiring a formal restructure.
CONSULTATION AND NEXT STEPS
Because we're now past 18 September, I would change the wording from the original article to:
Consultation on the exposure draft closed on 18 September 2026.
The Government sought feedback on areas including how the minimum tax would operate, excluded trusts and income, the definition of a fixed trust, the treatment of income tax-exempt entities, rollover relief, the proposed election regime and the treatment of excess franking credits.
The Government has indicated that further legislation will be introduced to implement the proposed changes. The final rules may therefore differ from the exposure draft.
Treasury confirms that the exposure-draft consultation ran from 3 September to 18 September 2026.
If you have a discretionary trust and would like to discuss how the proposed changes may affect your circumstances, please contact the Frontgate Advisory team. We’re happy to help you understand the proposed changes and discuss what they could mean for your business or trust structure.
