Treasury releases exposure draft on the 30% minimum tax on discretionary trusts

The Federal Government has released exposure draft legislation to implement its proposed 30% minimum tax on discretionary trusts, announced in the 2026-27 Federal Budget.

The package includes three interconnected measures:

• a new 30% minimum tax on certain discretionary trusts from 1 July 2028
• a transitional roll-over relief regime available from 1 July 2027 to 30 June 2030
• an optional election regime allowing existing trusts to avoid the minimum tax without restructuring.

The draft provisions represent one of the most significant trust taxation reforms in decades and will require many family groups to assess whether their existing structures remain appropriate.

Overview of the proposed minimum tax

From income years commencing on or after 1 July 2028, trustees of certain discretionary trusts will be subject to a minimum tax rate of 30% on relevant trust income. Where applicable, the tax is imposed at the trustee level and is designed to ensure a minimum effective tax rate of 30%, applicable to trust income. Non-corporate beneficiaries will generally be entitled to a corresponding non-refundable tax offset in respect of the tax paid at the trust level.

In some good news, a broader range of trusts than previously announced will be excluded from the measures, including:

• fixed trusts as per a new broader definition of such trusts (see below)
• widely held trusts including managed funds
• genuine testamentary trusts
• trusts that distribute to exempt entities or deductible gift recipients (DGRs).

Unfortunately, the testamentary trust exclusion only applies where the beneficiaries of the testamentary trusts are individuals or exempt entities. In the earlier submission by SW, we asked Treasury to limit the application of the minimum trust on testamentary trusts to scenarios where the trustee had exercised a discretion in favour of a precluded entity. This would save significant resources from taxpayers that would need to amend wills to comply with the new rules, but this has not been taken into account by Treasury. We intend to make further submissions to Treasury on this issue.

New fixed trust definition

One of the more significant aspects of the exposure draft is the introduction of a new tax law definition of ‘fixed trust’.

Rather than relying solely on traditional fixed entitlement concepts, a trust may qualify as a fixed trust where there are no ‘material discretionary elements’ affecting beneficiaries' rights or entitlements. The definition is intended to provide broader recognition for modern commercial trust structures and to ensure arrangements such as managed investment trusts, employee share trusts, and bare trusts are not inadvertently captured.

The proposed definition will apply more broadly across the tax law and will have implications beyond the minimum tax regime.

Concessions provided

To provide taxpayers some ability to bypass the impact of the new minimum tax trust rules, the exposure draft legislation provides some rollover relief for restructures and an alternative Excluded Election Trust (EET) regime. The draft legislation confirms that trustees of the same trust cannot access both the roll-over relief and the EET concession. Taxpayers must choose one pathway or remain within the minimum tax system. We have provided a summary for each of the items below.

Alternative 1: Electable regime for existing trusts

Rather than undertaking a restructure that may trigger duty costs, certain discretionary trusts existing on 1 July 2028 may elect into a new EET regime.

Under this regime:

• trustees nominate beneficiaries and fixed percentages of trust income and capital (which are required to be the same – that is, each nominated beneficiary must have the same percentage in relation to income and capital)
• the nominated percentages must total 100%
• the specified proportions must be maintained each year
• nominated beneficiaries generally cannot be changed, except in limited circumstances such as death or relationship breakdown
• the 30% minimum tax will not apply while the election remains effective.

However, the regime comes with significant rigidity.

If distributions are made inconsistently with the nomination, the election is automatically revoked. In the revocation year, beneficiaries are treated as though they were never presently entitled and the trustee becomes liable to tax on all trust income at the top marginal rate plus Medicare levy under section 99A. The trust then becomes subject to the minimum tax regime in future years. There is also a once-only opportunity for a trustee to voluntarily revoke the election, with similar results.

This election may be attractive for family groups seeking certainty and wishing to avoid the legal, commercial, and duty implications that can accompany restructures. However, it requires careful consideration of long-term succession and distribution objectives.

Alternative 2: Transitional roll-over relief

For groups wishing to move assets out of discretionary trusts, the Government has proposed a dedicated transitional roll-over regime available for three years from 1 July 2027 to 30 June 2030.

The relief is considerably broader than existing small business restructure provisions and is available irrespective of whether the trust carries on a business.

To qualify:

• the transferring trust must be within the scope of the minimum tax regime
• assets must be transferred to a single eligible transferee (individuals and company with single class shares, fixed trust, partnerships that are ultimately owned by individuals that are part of the family group)
• all required assets (there is an exclusion for primary production assets) must be transferred during the transitional period
• residency and continuity requirements must be satisfied
• the transferee must not contain material discretionary elements affecting members' rights.

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

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