On 3 September 2026, the Government released exposure draft legislation and explanatory materials for the proposed 30% minimum tax on discretionary trusts. This follows the 2026–27 Federal Budget announcement and the earlier consultation paper released in July 2026.

As the final rules may differ following industry feedback, we recommend not to rush making a decision based on the draft legislation. Any restructuring should be considered holistically as part of a broader group structure review, such as succession planning, business expansion, asset protection, financing arrangements and future exit plans.

What issues still need to be addressed?

Although the exposure draft is helpful, a number of practical issues remain unresolved. These include potential duty implications when restructuring or making an election under the regime, trust law implications where a trustee nominates particular beneficiaries, and the interaction with other tax law provisions.

For example, there may be Division 7A considerations where a corporate beneficiary is nominated as a fixed beneficiary under the election regime if the Government brings unpaid present entitlements (UPEs) into Division 7A provisions as announced in the 2018-19 Federal Budget.

What has changed since the consultation paper?

In general, the Government appears to have considered concerns raised during the consultation process. In response, the exposure draft includes a new fixed trust definition to reduce the risk of the minimum tax applying more broadly than intended.

It also introduces an election regime that may allow affected discretionary trusts to be treated as non-minimum tax trusts without restructuring, and excludes shares of net income distributed to registered charities and deductible gift recipients.

Summary of the minimum tax on discretionary trusts based on current exposure draft
  • Start date: 1 July 2028.
  • Rate: 30% minimum tax on relevant trust income.
    • Certain types of income will be excluded, such as primary production income, certain income relating to vulnerable minors, income subject to non-resident withholding tax, and income from testamentary trusts established for genuine testamentary purposes.
  • Non refundable tax credits for beneficiaries: only available to non-corporate beneficiaries, such as individuals and other trusts.
  • Corporate beneficiaries: Ineligible to claim tax credits, which will result in double taxation of up to 60%. This will make corporate beneficiaries no longer tax effective or practical to use.
  • Medicare levy: The tax offset cannot be used to reduce Medicare levy.
  • Excluded trusts: The minimum tax will not apply to fixed trusts, special disability trusts, deceased estates, widely held trusts, AMITs, complying superannuation entities or charitable trusts.
  • Franking credits: Excess franking credits are proposed to be refunded at the trust level. Beneficiaries would effectively receive a non-refundable tax offset rather than a refundable credit.
Restructure roll-over relief

Schedule 1 to the Bill provides optional roll-over relief for affected trusts that wish to restructure into a fixed trust or company structure. It also imposed a condition that the new structure after the rollover should not have material discretionary elements, such as a company with different share classes carrying different dividend or capital rights. The relief is proposed to be available for three years from 1 July 2027 to 30 June 2030. If the roll-over is used, the trust will not be able to make an election in the 2029 income year to be treated as a non-minimum tax trust (ie. excluded from the 30% minimum tax regime). Where the roll-over applies, relevant tax consequences are generally deferred rather than permanently disregarded.

Election to be treated as a non-minimum tax trust

As an alternative to restructuring, eligible affected trusts may be able to make an election to be treated as a non-minimum tax trust. The election can only be made for an income year starting on or after 1 July 2028, and only if the restructure roll-over relief has not been used.

Broadly, if the election is made, the trustee must nominate fixed beneficiaries for tax purposes, who will receive trust income and capital distributions for that income year and future income years while the election remains in place. Nominated beneficiaries can include individuals, trusts and eligible companies. Eligible companies are broadly companies without material discretionary elements as discussed above.

The election can only be made once. If it is revoked, either voluntarily or automatically, the trustee will be taxed at 47% for that income year. The election may be automatically revoked if the trustee does not make distributions in accordance with the nominated beneficiaries, or if a corporate or trust beneficiary is wound up. Once revoked, the election cannot be made again, although limited amendments may be available where a beneficiary dies or there is a divorce or relationship breakdown.

What should clients do now?

For now, affected clients should identify which trusts may be within the proposed regime, review current and historical distribution patterns, and consider whether their existing structure remains appropriate. However, any decision to restructure or make an election should wait until the legislation is finalised and should be considered alongside other available options. Outside the proposed restructure roll-over relief, current exemptions and concessions, including the small business CGT concessions, may be more appropriate depending on the client’s particular circumstances.

Co-authored by Monika Lam, Senior Tax Manager, HLB Mann Judd