From 1 July 2028 the trustee of a discretionary trust would pay tax so that the trust’s net income, other than excluded income, is taxed at no less than 30 per cent. It is not law yet.
Where it stands
- 12 May 2026. The 2026-27 Budget announced a 30 per cent minimum tax on discretionary trusts from 1 July 2028.
- 8 July 2026. The Government released a Treasury consultation paper. Submissions closed on 31 July 2026.
- 3 September 2026. The Government released exposure draft legislation, explanatory materials and a fact sheet. Consultation closed on 18 September 2026.
- 7 October 2026. The measure is not yet law.
What the draft law does
The trustee pays. The trustee of a “minimum tax trust” is assessed on the trust’s “minimum tax income”: its net income, less the income the draft excludes. The rate tops up any other tax the trustee pays on that income to at least 30 per cent. The tax would apply to income years starting on or after 1 July 2028.
Which trusts. Every trust that is not a fixed trust, a special disability trust, a deceased estate, a complying superannuation entity or a kind of trust the Minister excludes by legislative instrument. The draft replaces the fixed trust definition used across the tax law with one that has two limbs. A trust is fixed if its beneficiaries have fixed entitlements to all of its income and capital. It is also fixed if there are “no material discretionary elements affecting the entitlements or rights of the trust’s beneficiaries”. The Minister could determine, by legislative instrument, matters that suggest there are no such elements or that mean there are.
Beneficiaries. A beneficiary that is not a body corporate gets a tax offset of 30 per cent of the amount in its income that is reasonably attributable to the minimum tax income. The offset is not refundable. A corporate beneficiary gets no offset and is still assessed on its share.
What is left out. The exclusions include: taxable primary production income; certain income relating to minor beneficiaries; certain income relating to registered charities, deductible gift recipients and other exempt entities; payments to non-residents that are withholding payments; and income of testamentary trusts established for genuine testamentary purposes. For a testamentary trust, income from property added after 7.30 pm (ACT time) on 12 May 2026 that is unrelated to the deceased estate is not excluded. For a testamentary trust established on or after 1 July 2028, only income derived for beneficiaries that are individuals or exempt entities is excluded.
The election. A trust in existence on 1 July 2028 can elect out of the minimum tax under proposed Division 6F. The election must be made between 1 July 2028 and the end of the trust’s first income year starting on or after that date. The trustee must notify the Commissioner of the election and the nomination, in the approved form, by the earlier of two dates for the trust’s return for the income year in which the election is made: its due date and the day it is lodged. The trustee must nominate each beneficiary it may make presently entitled and set each one’s share of income for each year, with the same share of capital. The shares must add to 100 per cent. Except for a replacement under the variation rules, a nominee must have been capable of benefiting under the trust on 1 July 2028. A nominee cannot be a complying superannuation entity, a partnership or a company other than an “eligible company” (one with no material discretionary elements affecting its members’ rights or interests). The nomination can change only on the death of a nominated individual or a relationship breakdown between two nominated individuals. On a death, new nominees must be individuals who are beneficiaries of the deceased’s estate. A relationship breakdown must involve an order, agreement or award of a kind in s 126-5(1)(a) to (f) ITAA 1997.
Revoking the election. The trustee can revoke the election for later years by notice to the Commissioner in the approved form. The notice is due by the earlier of the due date and the lodgment date of the trust’s return for the income year in which the trustee decides to revoke. The election is revoked automatically if the trustee “decides not to confer” entitlements as nominated. Certain events affecting a nominated trust or company also revoke it. Examples are the trust vesting and a person who held a share in the company when it was nominated ceasing to hold that share, other than on an individual shareholder’s death or relationship breakdown. In the income year in which the election is revoked, the beneficiaries are treated as never presently entitled and the trustee pays tax on all of the trust’s net income at the top marginal rate plus Medicare levy. Later years fall under the minimum tax. The text does not limit this to automatic revocation, although the explanatory materials describe a revocation by the trustee as applying to later years.
The rollover. Income tax rollover relief, including for CGT, would be available for transfers from 1 July 2027 to 30 June 2030. It is for a full restructure: all of the trust’s assets must go to a single entity, with limited exceptions that include assets used in a primary production business. The transferor and the transferee must both choose the rollover and meet residency requirements. The transferee cannot be an exempt entity, a complying superannuation entity or the trustee of a minimum tax trust. State and territory duties still apply in the ordinary way.
Conditions on the transferee. For a family trust, the transferee (if an individual) or each individual with a direct or indirect interest in it must have been a beneficiary of the trust and a member of its family group just before the transfer. For other trusts the continuity requirements are left to a ministerial instrument. The explanatory materials say that, until one is in force, this pathway is not available. Relief is not available if the transferee has material discretionary elements affecting its members’ rights or interests at any time from the last transfer to the end of the fourth income year after the year of that transfer.
The election or the rollover. A trustee can use the election or the rollover, not both. A trustee that has made the election cannot later choose the rollover, even if the election has been revoked. The explanatory materials say choosing the rollover rules out the election even if the restructure is not completed.
Still to come. Later legislation will deal with notification to beneficiaries, collection and administration. The explanatory materials also expect later amendments on how the tax interacts with the rules on residency, capital gains tax and international taxation. They expect further integrity rules too.
What we told Treasury
31 July 2026: the consultation paper. We said the measure should be withdrawn. Its whole net burden falls on beneficiaries whose average tax rate is below 30 per cent: the retiree, the carer, the adult child studying. On Treasury’s own example it collects more than the wage earner it uses as its benchmark. It taxes income that flows to a company twice. Its scope rests on a definition the paper left open. We proposed a targeted rule on income splitting instead. We said a stakeholder proposal for an irrevocable election to be treated and taxed as a fixed trust merited development. Read the submission (PDF).
18 September 2026: the exposure draft. We said it again: withdraw the minimum tax and Division 6F with it. The draft election is not the election we supported in July. It asks a trustee to promise in 2028-29 how it will exercise its discretion in every later year for as long as the election lasts. Equity treats that promise as of no effect. A trustee that follows the nomination without real and genuine consideration each year is in breach of trust. A trustee that does its duty and departs from the nomination loses the election and 47 per cent of the year’s net income. On the text, the same consequence follows a revocation by the trustee itself. Read the submission (PDF).
An election designed to soften a tax that should not exist concedes that it should. We make no such concession.
1 October 2026: Accountants Daily. Our principal, Arda Ahmed, spoke to Accountants Daily about the minimum tax. Lawyers Weekly republished the piece on 7 October 2026.
General information only. This page states the position as at 7 October 2026. The law may have changed since. It is not legal or tax advice, does not take account of your circumstances and must not be relied upon as a substitute for advice on your own matter. If the issue is live for you or your client, email arda@nortonquaytaxlaw.com.au for advice on the current position.