The 30% trust tax draft: what firms need to decide next

The Government has released draft legislation for the 30% minimum tax on discretionary trusts announced in the 2026-27 Budget. The tax itself lands 1 July 2028, but the more immediate date is 18 September 2026. That is when submissions on the exposure draft close, and it is the profession’s clearest window to shape the final legislation.

What the draft confirms

The 30% minimum tax applies at the trustee level. Non-corporate beneficiaries who are presently entitled to a share of net income can claim a non-refundable credit for the tax paid by the trustee.

Broad exclusions apply. Charitable trusts, special disability trusts, complying superannuation entities, primary production income, certain vulnerable minor income, deceased estates and genuine discretionary testamentary trusts all sit outside the measure.

Treasury has framed the impact with numbers. More than 90 per cent of Australia’s 2.7 million active small businesses will not be affected in any given year. Around 350,000 small businesses operated through a discretionary trust structure in 2022-23, and roughly 40 per cent of those are not expected to pay additional tax or need to restructure.

The election option

For trusts that would be caught by the minimum tax, the draft introduces an election option. A discretionary trust existing at 1 July 2028 can elect into a new regime that avoids the minimum tax without needing to restructure.

The mechanism is a fixed distribution to pre-nominated beneficiaries. Trustees can nominate individuals and entities capable of benefiting under the trust at that date, including eligible companies and other trusts. There is no cap on the number of beneficiaries. A trust could, for example, nominate to distribute future income to an eligible company, with that income then taxed only as income of the company.

Nominated beneficiaries can only be added or changed later where a beneficiary passes away or there is a family breakdown. The election is in place until the trustee revokes it, or until it is automatically revoked. Automatic revocation happens when the trustee makes distributions inconsistent with the election. On revocation, the trustee is subject to the highest marginal rate plus Medicare levy that year, with the minimum tax applying in subsequent years.

Treasury has stated the election does not require a restructure and is not expected to trigger state and territory stamp duties.

Restructure rollover

For firms wanting to move clients out of discretionary trust structures entirely, a three-year restructure rollover is available from 1 July 2027. It facilitates the transfer of assets out of discretionary trusts to companies or fixed trusts, and provides relief from income tax consequences including capital gains tax. The rollover is designed for full restructuring, with a targeted exception for primary production assets.

The Australian Small Business and Family Enterprise Ombudsman will be available to assist small businesses to understand their options, and ASIC will put arrangements in place to support small businesses that want to incorporate.

Where the discussion is active in the profession

The draft has landed, and there is a lot of active discussion in the profession about how the election will work in practice.

Accountants have been working through what the perpetual nomination means for the way trust advisory has been done. Annual distribution planning has been core to trust work for a long time, and practitioners are discussing what changes for firms whose advisory practice has been built around it.

Questions being raised in professional discussions include how the election interacts with bucket companies, given the election allows corporate beneficiaries but locks in fixed proportions. Practitioners have also been discussing corporate beneficiaries where underlying ownership may change over time, and how the fixed proportions handle years where the composition of trust income (franked dividends, capital gains, ordinary income) does not align neatly with the split.

Streaming has come up in the discussion. Trust deeds often stream franked dividends to one beneficiary and capital gains to another. Practitioners are discussing whether a fixed proportion election preserves that flexibility, or whether it effectively ends it, and this is one of the areas where clarification in the final legislation is being sought.

The most unresolved point in the professional discussion is state and territory stamp duty. Treasury’s position is that the election is not expected to trigger stamp duty. State governments have not committed to that outcome, and coverage in the financial press has flagged stamp duty exposure as an open question for any firm considering the election. Until state revenue offices confirm their position, this is a live concern being raised in the profession.

What firms should be doing now

The consultation window closes 18 September 2026. Firms wanting to raise questions, propose amendments or make representations can submit through the Treasury Consultation Hub. The window is short, and this is the direct route to influence the shape of what becomes law.

Beyond the submission, the practical work starts now. The practical question is which of the three mechanisms Treasury has set out (the election, the rollover, or paying the minimum tax) works best for each client. Firms should be identifying which trust clients are likely to be affected, which are excluded, and which face a genuine choice. Early client conversations help set expectations, particularly where clients have relied on discretionary distribution planning as part of their tax approach.

The three-year restructure rollover starts 1 July 2027. For clients where restructure looks like the right path, modelling should start now so the groundwork is done when the rollover opens.

What comes next

Treasury has flagged further tranches of legislation, including administrative and integrity arrangements. The current draft covers the core components. More detail is expected on how the excess franking credit refund mechanism will work, how the reasonable cap for income tax-exempt entity distributions will be set, and how the new fixed trust definition will apply.

For more information visit the ATO website.