Trust in the detail, part two: SW responds to the minimum tax trust exposure draft

SW has made a further submission to Treasury (read here) on the exposure draft legislation for the 30% minimum tax on discretionary trusts, calling for a workable fixed trust definition, a more flexible election regime, and rollover relief that does not come at the cost of State duty.

Introduction

On 3 September 2026 the Government released exposure draft legislation (ED) implementing the core components of the 30% minimum tax regime (MTR) for discretionary trusts, with consultation closing on 18 September 2026. The package confirms a 1 July 2028 start date and introduces two response pathways for affected trusts:

• transitional rollover relief
• a new excluded election trust (EET) election.

Following our 31 July 2026 submission on the Consultation Paper, SW has lodged a second submission responding to Treasury’s exposure drafts on ‘Minimum Tax Trusts’. We welcome several features of the draft relative to earlier announcements; in particular a broader fixed trust definition, the carve-out for distributions to charities, not-for-profits and tax exempt, the refund model for excess franking credits, and the availability of offsets through chains of trusts. However, a number of issues and anomalies remain that, in our view, require further consideration before the measures are settled.

What SW has submitted

The fixed trust definition should turn on the exercise of powers, not their existence

Almost every professionally drafted trust instrument contains powers to amend the deed, to issue or redeem units, to characterise receipts as income or capital, or to create classes of interests. Under the proposed changes, the mere existence of such a power appears capable of denying fixed trust status. The result is that a very large population of trusts that are, in economic substance, entirely fixed, including the vast majority of single class unit trusts, would be treated as discretionary by default.

We have submitted that unexercised powers, subject as they are to fiduciary constraint, should be disregarded unless and until exercised in a way that materially alters defined entitlements, consistent with safe harbour 6 in PCG 2016/16.

MITs, widely held trusts & employee share trusts need to be expressly excluded

The Explanatory Memorandum and the Treasurer’s media release states that MITs, widely held trusts, and employee share trusts will fall outside the MTR. In our view that outcome is not clear on the text of the law. Absent express inclusion in the fixed trust definition, these trusts will need to review and amend their constitutions, an avoidable cost, with real practical difficulty for schemes regulated under the Corporations Act 2001 where member resolutions are required, and with potential State duty exposure. At a minimum, there should be a statutorily binding safe harbour along the lines of PCG 2016/16 that does not depend on the exercise of the Commissioner’s discretion.

The EET regime is a useful concept but needs more flexibility

We support the logic of the EET regime, which allows a trust to be notionally fixed for tax purposes without surrendering the asset protection that a discretionary structure offers. To be workable, we have submitted that:

• the grounds for varying an election be expanded beyond death and relationship breakdown, to include bankruptcy, legal disability, or incapacity of a nominated beneficiary
• the definition of eligible company be tested on the same ‘exercise, not existence’ basis as the fixed trust definition
• availability be extended to trusts established on or after 1 July 2028, or at least to 30 June 2030 to align with the proposed rollover window
• distributions of corpus that are not capital gains should not be constrained by the election
• automatic revocation of the EET not be triggered by an accumulation of income assessed under section 99A, by the application of section 100A, or by distributions to registered charities and tax exempt.

We have also flagged the trustee risk highlighted by Owies v JJE Nominees Pty Ltd, and the residual uncertainty as to whether making an election could attract duty in some states, a point that will need confirmation from each revenue authority if the regime is to be relied upon.

Rollover relief should not be defeated by dutiable property

The requirement that all trust assets be transferred means that a trust holding dutiable property is effectively forced to choose between a duty cost and the minimum tax. As a trust cannot both elect the EET regime and access the rollover, income from any retained assets remains within the MTR in any event. We see no policy or integrity basis for the duty impost and have submitted that the carve-outs be expanded.

Testamentary trusts, primary production & corporate beneficiaries

We have renewed three points from our earlier submission.

• The testamentary trust exclusion should operate by reference to distributions actually made to individuals and exempt entities, rather than requiring existing wills to be rewritten.
• The primary production exclusion should extend to income derived from the use of land or assets by a related entity carrying on a primary production business — a very common rural ownership structure.
• The double taxation of distributions to corporate beneficiaries, which produces an effective rate of 60%, rising to 69% on payment to a top-rate shareholder, remains sufficiently harsh that we have again urged the Government to reconsider it.

Consultation process

While we welcome Treasury’s adoption of several points raised in the first round of consultation, a consultation period of 11 working days is too short for reforms of this scope and depth, particularly where the bulk of the changes do not commence until 1 July 2028. We have recommended that more time be allowed for future tranches.

What this means for you

The regime will have significant consequences for private business and family groups using trusts, particularly those with corporate beneficiaries. It may also affect commercially fixed unit trusts, managed funds, primary production structures, testamentary trusts, and groups weighing a restructure ahead of 1 July 2028.

How SW can help

SW can model the impact of the minimum tax on your current structure, assess whether existing arrangements remain fit for purpose, and evaluate the three practical paths — rollover, EET election, or accepting the minimum tax — including the interaction with State duty.

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

Contributors

Ned Galloway | Associate Director, Tax