Trust in the detail: SW calls for a fairer 30% minimum tax on discretionary trusts

SW has lodged a submission with Treasury on the proposed 30% minimum tax on discretionary trusts, urging targeted changes to prevent ‘fixed’ commercial structures being swept in and to remove a punitive 60% double-tax on corporate beneficiaries.

Introduction

In the 2026–27 Federal Budget, the Government announced a 30% minimum tax on discretionary trusts, with the stated policy objective to limit income splitting and better align the tax on trust income with the rates paid by wage and salary earners.

While we understand the policy goal of maintaining a genuine 30% floor on discretionary trust income, we hold significant concerns that key elements of the measure, as currently framed, are over-inclusive, administratively burdensome, and, in places, penal. Our submission proposes practical, targeted refinements that preserve the 30% floor while avoiding unfair outcomes.

Even if the significant variations to the proposed regime submitted to Treasury by SW are accepted, there would still be significant impacts on longstanding and accepted structures – in particular the inability for family groups to offset (pre-tax) discretionary trust distributions against losses at the beneficiary level, for example, losses in companies and trusts.

What SW has submitted

In response to the limited scope questions on which consultation was sought, a brief outline of the key points submitted by us are as follows:

A statutory definition of ‘discretionary trust’

The measure should not simply capture any trust that fails the existing ‘fixed trust’ test in Schedule 2F of the ITAA 1936. That bar is exacting and would produce a large number of ‘false positives’, drawing in unit trusts and other structures that are, in substance, fixed. SW submits there should be a purpose-built definition targeting trusts with a substantive power to redirect the economic enjoyment of income or capital between beneficiaries, with express carve-outs for managed investment trusts (MITs), attribution managed investment trusts (AMITs), and most unit trusts.

Carve-out for tax-exempt entities

A non-refundable 30% withholding on distributions to income tax-exempt entities (such as charities and ancillary funds) would, in effect, tax the exempt sector and reduce philanthropic funding by up to 30%. We submit that the offset should be refundable for exempt beneficiaries, or that such distributions be carved out entirely.

Remove the double tax on corporate beneficiaries

Denying company beneficiaries a credit for the trustee-level tax produces an effective rate of 60%, and up to 69.7% once distributed to individuals. SW proposes a ‘restricted franking account’ mechanism that delivers a non-refundable offset to the company and quarantines the credit so it can never be refunded to low-rate shareholders. This maintains the 30% floor without double taxation – and largely removes the need for complex rollover relief.

Workable rollover relief & state duty

If the penal treatment of corporate beneficiaries proceeds, rollover relief becomes critical. We warn that, without matching state duty concessions, restructures could trigger duties of up to 6.5%. We submit that relief should not require all assets to be transferred, and that the Commonwealth should secure aligned state duty relief or provide an income tax offset for duty paid.

Collection, lodgement & the Bendel decision

SW recommends aligning trust and individual lodgement dates, making the trustee and beneficiary jointly and severally liable (to avoid widespread deed amendments), refunding excess franking credits to the trustee, and confirms that no further Division 7A changes are needed following the High Court’s decision in Bendel.

Who is impacted

• Private business and family groups operating through discretionary trusts, particularly those with corporate beneficiaries.
• Unit trusts and other structures that are commercially ‘fixed’ but may fall within the current definition by default.
• Charities, ancillary funds, and other income tax-exempt beneficiaries of discretionary trusts.
• Property, investment, and testamentary trust structures, and those weighing restructures ahead of 1 July 2028.

How SW can help

SW is actively advising clients on the practical implications of the proposed regime. Our team can model the impact of the minimum tax on your current structure, assess whether existing arrangements remain fit for purpose, and evaluate restructuring options ahead of the 1 July 2028 commencement, including the interaction with state duty. We will continue to keep clients informed as the consultation progresses and draft legislation is released.

Please contact your SW advisor to discuss how these proposed changes may affect you or your clients.

Contributors

Ned Galloway | Associate Director, Tax

Related links

Treasury – Minimum tax on discretionary trusts: Consultation Paper (8 July 2026)

ATO – Tax reform: introducing a minimum tax on discretionary trusts

SW insight – Proposed testamentary trust rules: Understanding the 30% minimum tax exemption

This alert is general in nature and does not constitute advice. The measure is not yet law and remains subject to consultation. Liability limited by a scheme approved under Professional Standards Legislation.