Minimum tax on discretionary trusts: the Bills are now before Parliament

The minimum tax on discretionary trusts legislation is now in Parliament. The Treasury Laws Amendment (Tax Reform No. 3) Bill 2026 and the Income Tax Rates Amendment (Minimum Tax on Discretionary Trusts) Bill 2026 (the “Bills”) were introduced on 14 October 2026 and referred to a Senate committee the next day. The committee is due to report in mid-November. One has to think that legislation will not pass Parliament this side of Christmas. Critically, the proposed start date remains 1 July 2028 and the roll-over window runs from 1 July 2027 to 30 June 2030.

Broadly, given the legislative uncertainty, we think it’s sensible to consider your structure and those of your clients but hold off on implementing a restructure until the law is final.

The situation is trickier for new structuring engagements. We think it sensible to plan for the possibility of the law being implemented, but also to keep in mind what would occur should the law not make it through Parliament. This uncertainty is difficult and onerous, but the reality is, at least for the moment, the Government is pressing ahead with the proposed law. Overlay this with the fact that a federal election will occur before 1 July 2028 and both the Coalition and One Nation have made announcements that they will repeal any legislation enacted. It is just an incredibly difficult time to advise clients and set up structures.

This update discusses:

1. What has changed in the law before Parliament from the exposure draft
2. Other tax and legal updates

As always, our updates are intended to be practical as opposed to a summary of law.

Part A: The Bills now before Parliament

1. Improvements from the exposure draft

The introduced Bills address some of the technical problems in the draft:

• Employee share trusts are now expressly carved out in the Bills.
• Where a trust’s franking credits exceed its minimum tax, the trustee should get the excess back as a refund.
• For a trustee who inadvertently breaches an EET nomination, the Commissioner has discretion to disregard the breach.

2. What is unchanged

The design of the proposed law itself is unchanged. Any trust that is not a fixed trust is caught unless an exclusion applies. Companies still get no credit for tax the trustee has already paid: our principal concern with the proposed regime.

The excluded election trust (“EET”) still asks groups to lock in their arrangements once, in 2028-29, to apply ongoingly. Much of the detail will also arrive later, through Ministerial instruments, ATO guidance and further Bills.

3. The issues we are most concerned about

a. Corporate beneficiaries

Corporate beneficiaries will effectively be double-taxed.

Under the proposed treatment, corporate beneficiaries may bear company tax without a credit for the minimum tax paid by the trustee. On the assumptions below, the effective tax rate can approach 70% when the remaining cash is distributed to a shareholder on the top marginal rate.

Treasury’s stated concern is that companies let families defer tax. Fundamentally, we see no problem with that, as it is a critical element of the corporate tax system. Treasury is also concerned with the ability for companies to issue refundable franking credits to shareholders and effectively circumvent the application of the minimum tax. Our view remains that this concern can and should be dealt with directly and without pushing many groups into a need to restructure. Treasury could look to introduce (a) an integrity rule, or (b) by giving the company a credit it can use against its own tax but can never turn into a cash refund.

The Government has been asked to and should give greater consideration to the administrative burden the Bills place on taxpayers.

b. The EET election

• Older deeds: Many older deeds were not drafted with the express power to make tax elections. Before an EET is made, deeds will need to be checked.
• Rigidity: The nomination can change only on a death or relationship breakdown. The Commissioner’s new discretion will not help a trustee who departs from it deliberately, even for good reason.
• Nominating a company: We are already hearing of groups planning on nominating a corporate beneficiary. Being effectively compelled to distribute future capital gains in the company is not tax-effective. Further, the election would be lost (with adverse tax consequences) if the company is wound up or its shareholders change (other than on a death or family law split).
• Timing: There is one chance to elect, in 2028-29 and an EET cannot be combined with the new proposed roll-over.
• Asset protection: The potential asset protection implications of nominating a beneficiary remain untested. This will be a significant concern for groups. It undermines one of the fundamental benefits of using a discretionary trust in a group structure.

c. Roll-over relief

• The new entity, and every entity above it, must be free of discretionary features, i.e., no discretionary dividend shares and no discretionary trust as a shareholder.
• Subject to limited exceptions, every asset must be transferred to a single entity by 30 June 2030. Eligibility issues could arise where, for example, a lender will not consent or a licence cannot move.
• A restructure spread over several years needs annual notices to the Commissioner in the approved form.

For many clients, the small business CGT concessions, the Subdivision 328-G roll-over or a top hat roll-over (Subdivision 122-A or Division 615) will be preferred restructure routes to this new roll-over.

d. Stamp duty

The roll-over does not provide duty relief (as yet) and the Government only “expects” the EET not to attract duty. NSW has announced relief for EET elections and WA is reportedly set to follow, but neither covers transfers under a roll-over. We are not aware of any Victorian announcement.

In our view, every State should grant relief for both pathways, because it is our view that there is almost certainly not going to be any duty to collect either way. Without specific duty relief, clients will simply leave dutiable assets, usually land, where they are and not utilise roll-overs (therefore, not raising any duty revenue). With duty relief, the restructure happens duty free (also not raising any duty revenue). Either way, the State would not have any revenue from duty to collect.

e. Testamentary trusts

A testamentary trust established on or after 1 July 2028 loses its exclusion if a company or another trust is even named as a possible beneficiary and Wills signed before Budget night are not grandfathered.

Whilst this makes testamentary trusts comparatively much more advantageous than they were before (relative to ordinary discretionary trusts, i.e., inter vivos trusts made during a lifetime), the proposed implementation of the law requires the exclusion of a company or another trust as a potential beneficiary of the testamentary trust.

As a result, testamentary trust Wills, in most cases, will likely need to be amended.

What is proposed is a significant administrative burden that, in our view, is entirely unnecessary for the Government to implement. Testamentary trusts that are currently drafted are almost always drafted with companies and trusts as potential beneficiaries. That is the very nature of discretionary testamentary trusts. The effective proposed requirement to now vary all of those testamentary trusts should not have been made a function of the Bills nor any Government proposals.

f. Complexity

The regime directly or indirectly impacts dozens of existing rules, from Division 6 and the streaming rules to franking, the family trust rules and Division 7A. Treasury has already flagged further Bills on its interaction with CGT, residency and international tax.

Part B: Other updates

Please see below a table of other recent updates and what they may mean for you and your clients.