Date: 24 September 2026
The draft legislation introducing a minimum tax on discretionary trusts has sparked strong concern across the accounting and legal professions. The fear is that this change will push Australia’s tax system from overly complicated to outrageously unwieldy.
Trustees will have three options, each with its own limitations and unattractive consequences.
1. Do nothing. From 1 July 2028 trust income will be taxed at a minimum rate of 30%.
The tax will be payable by the trustee, with non-corporate beneficiaries receiving a non-refundable offset for tax paid on their share. This will affect modest-income beneficiaries most, as the offset cannot generate a refund if their own tax liability is lower than the trustee-paid tax. High-income beneficiaries will generally be able to use the offset in full.
Some income will be exempt, including primary production income, certain income relating to vulnerable minors, and distributions to registered charities and deductible gift recipients. Where a trust has multiple purposes, each income source will need to be tracked separately.
Charitable trusts, special disability trusts, complying superannuation funds, deceased estates and discretionary testamentary trusts established for genuine testamentary purposes will sit outside the regime.
2. Take the rollover. Trustees may choose to transfer all trust assets to another entity, such as a company or fixed trust, during the three-year transitional period from 1 July 2027 to 30 June 2030. The proposed rollover is intended to reduce the tax cost of restructuring by providing relief from capital gains tax and family trust distribution tax where the relevant conditions are satisfied.
The rollover has limits: all assets must be transferred by 30 June 2030 to a single transferee entity, and the relief does not automatically cover stamp duty, motor vehicle duty or broader commercial consequences.
3. Elect to be an Excluded Election Trust (EET). This option offers relief from the 30% minimum tax regime if a once-off election is made between 1 July 2028 and 30 June 2029 to fix the percentage of trust income and capital that will be distributed to nominated beneficiaries for the life of the trust.
Other than narrow exceptions, such as death or divorce, the nominated beneficiaries and fixed percentages cannot change. If distributions are made inconsistently with the election, the EET is automatically revoked and cannot be remade. In the revocation year, the trustee is taxed at the top marginal rate, with the 30% minimum applying thereafter.
Unfortunately, no single option will suit every trust. Trustees and advisers will need to weigh the practical, legal and tax consequences for each client by 30 June 2029. At Roberts + Morrow, we are preparing now to help clients understand their options, assess the risks and choose the path that best fits their circumstances.
You may also be interested in our follow-on article (click here) on the legal ramifications of these proposed changes.
Like more information or to schedule a discovery call? Contact | Roberts + Morrow
Article written by Karina Waite, Senior Lawyer – RMLS
