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September 9, 2026
On 3 September 2026, Treasury released draft legislation for the 30 per cent minimum tax on discretionary trusts announced in the May Federal Budget. The consultation closes on 18 September, and the legislation is expected to change before it is introduced to Parliament.
In August we wrote about the Government’s consultation paper and you can read more about the submission we made here on behalf of the family business and investment groups we advise. Luke Henry and Eric Zheng provide an update on where the proposal now stands, with a closer look at the two concessions likely to be relevant to affected families.
It is not yet law, and the detail below is likely to move. We will write again once the legislation is settled.
Here are our key takeaways:
The tax. From the 2028-29 year, the trustee of a discretionary trust pays tax at a minimum rate of 30 per cent on the trust’s income. Individual beneficiaries receive a credit for that tax in their own return. Since the credit cannot be refunded, the minimum tax has an effect where a beneficiary’s own rate is below 30 per cent. Broadly, beneficiaries with income of around $200,000 or less, with the largest effect on those well below that level.
Company beneficiaries. A company that receives a distribution gets no credit and is taxed again on the same income. On $100,000 of trust income, the total tax by the time the money reaches a family member on the top rate is close to $70,000, against roughly $47,000 today.
Who is excluded. Fixed trusts (including ordinary unit trusts and managed funds under a widened definition), testamentary trusts, deceased estates and superannuation funds are outside the tax. Farming income, certain income of vulnerable children and distributions to registered charities are excluded even where the trust itself is caught.
The draft also rewrites the tax law’s definition of a fixed trust, which decides whether a trust is outside the minimum tax altogether. Under the current law many ordinary unit trusts and joint venture trusts technically fail the test because of powers in the deed that have nothing to do with who receives the income.
The new definition looks instead at whether there is any real discretion over beneficiaries’ entitlements, so that ordinary commercial trusts are treated as fixed. This is a change we asked for, and it will apply across the tax law, not just to the minimum tax. Whether a particular unit trust qualifies will still depend on its deed, and that is something we will be checking as part of our structure reviews.
The Government has described the package as a fair transition for families who set up their structures under settled law. The draft offers two routes. Each has a different shape, and they are mutually exclusive.
Between 1 July 2027 and 30 June 2030, a family can move the assets of a discretionary trust into another entity without paying capital gains tax on the transfer, and without triggering the usual tax on trading stock or depreciating assets. The recipient can be a company, a fixed trust, a partnership or an individual. The tax history of the assets travels with them, including cost base and the periods that count towards the small business concessions.
The main conditions are that everything must leave the trust, it must all go to a single recipient, and the people who own the recipient must be the same people who could benefit from the trust. A company with a simple share structure will generally qualify; one with several classes of shares will generally not.
The rollover may suit families whose trust holds a business or assets that would sit comfortably in a company, and who are prepared to give up the flexibility of a trust. Its costs are stamp duty, which the Commonwealth legislation does not cover and which will depend on the state and on how the transfer is structured, and the loss of some capital gains tax concessions that companies do not receive, although the small business concessions generally remain available. Its main attraction is timing: a restructure completed before 1 July 2028 means the trust never pays the minimum tax at all.
A trust that exists on 1 July 2028 can instead elect to be excluded from the minimum tax. To do so, the trustee nominates each beneficiary and the fixed percentage of the trust’s income and capital that beneficiary will receive, adding to 100 per cent. Beneficiaries can be individuals and, in some cases, companies or other trusts, but not partnerships or superannuation funds, and they must have been able to benefit under the deed on 1 July 2028. The trust then distributes in those exact proportions every year.
Nothing moves, so there is no stamp duty and no capital gains tax, and the trust deed does not need to be amended. Treasury has also indicated that the election is not expected to trigger stamp duty in its own right.
The price is flexibility. The nomination is permanent, with changes allowed only on the death of a beneficiary or a family law settlement. Distributing in any other proportion cancels the election, and the draft attaches a heavy penalty to that. The election can only be made in the 2028-29 year; a trust that does not make it in that year cannot make it later.
The election may suit families whose distribution pattern is already stable and whose reasons for using a trust are as much about asset protection, succession or holding property as about tax. It is less suited to families where circumstances change, where beneficiaries come and go, or where the trust is used to manage who receives income from year to year.
Because a trust cannot do both, the choice depends on what the trust holds, who the beneficiaries are, whether there is a bucket company and how it is owned, the family’s succession plans, and the family’s appetite for a permanent arrangement. For some groups neither will be right, and continuing with the trust and paying the minimum tax may still be appropriate depending on the group’s broader objectives.
In July we put a number of points to Treasury. In summary:
We will lodge a further submission before 18 September on the drafting and restate the points that have not been taken up.
LDB is actively advising family business and investment groups on the minimum tax and the choices it presents. Our tax team can model the impact of the measure on your current structure, assess whether your existing arrangements remain fit for purpose, and evaluate the rollover, the election and the alternatives against your family’s circumstances, including stamp duty, succession and estate planning considerations. Where the trust sits alongside a bucket company, unpaid entitlements or Division 7A loans, we can identify the issues to resolve ahead of the 1 July 2027 rollover window.
Because our tax, wealth and superannuation teams work together, our advice takes in how the family’s wealth should be held for the long term, not just the tax outcome. We will continue to keep clients informed as the consultation progresses and the legislation is finalised.
If you would like to understand how the proposal may apply to your group, call us on (03) 9875 2900 or get in touch online.
A copy of our submission to Treasury is available on request.
The information is current at the date of publication and may be affected by subsequent changes to legislation, regulatory guidance or other circumstances.
