The Federal Government’s proposed 30% minimum tax on discretionary trusts has moved beyond the initial consultation stage, with legislation introduced into Parliament on 14 October 2026.
The proposed minimum tax would apply from 1 July 2028. Expanded restructuring rollover relief would begin a year earlier, on 1 July 2027.
The measures remain proposed legislation. However, trustees and family groups might want to start reviewing their arrangements now, particularly where they use corporate beneficiaries, hold company shares through a discretionary trust or have Wills containing testamentary trusts.
The appropriate response will depend on more than the expected tax bill. Control, asset protection, distribution flexibility and succession planning must also be considered.
How would the minimum tax operate?
The proposed regime would impose tax at the trustee level on income falling within the minimum-tax rules. Eligible non-corporate beneficiaries would generally receive a corresponding non-refundable tax offset.
A beneficiary’s marginal tax bracket alone would not establish whether the offset could be fully used. Their overall income-tax position would need to be modelled.
The proposal also does not mean that every distribution would attract an additional 30% tax on top of the beneficiary’s ordinary tax. Equally, it would not permit trustees to accumulate income at a flat 30% rate where existing provisions impose a higher trustee tax rate.
Corporate beneficiaries require separate attention. Under the proposed rules, they would not receive the minimum-tax offset available to eligible non-corporate beneficiaries. The same income could therefore bear tax at both trustee and company levels.
This may materially change the effectiveness of existing “bucket company” arrangements. It should not, however, be reduced to a single tax-rate headline without examining the particular income, company tax position and subsequent distributions.
An election may avoid restructuring, but carries ongoing constraints
The proposed Excluded Election Trust (EET) arrangement would allow certain trusts to remain outside the minimum-tax regime by nominating beneficiaries and their respective shares of income and capital.
The proposed election is transitional. It is directed to trusts existing on 1 July 2028, with an election window linked to the first income year commencing on or after that date.
The nomination is intended to govern distributions in subsequent years. Permitted changes are limited, including specified circumstances involving death and relationship breakdown. Trustees should not assume that they could freely add future children or grandchildren, change proportions or redirect benefits as family circumstances evolve.
The introduced Bills also propose a Commissioner’s discretion to disregard certain automatic revocations arising from inadvertent errors or genuinely exceptional circumstances. Relief would require an application and should not be assumed.
Revocation can have consequences substantially more severe than simply bringing the trust into the 30% minimum-tax regime. In relevant circumstances, the trustee could be assessed on the trust’s entire net income for that year at the top marginal rate plus Medicare levy.
The election would not replace the trustee’s legal duties
An EET nomination should not be treated as authority to apply the same distribution formula mechanically each year.
Trustees must continue to act within the deed, exercise their powers for proper purposes and give genuine consideration to relevant circumstances. The tax consequences of departing from a nomination may be significant, but they do not remove those obligations.
For example, a beneficiary may later experience serious illness, financial difficulty or relationship breakdown. The trustee would need to consider its legal obligations and the tax implications of its decision together.
Trustees considering an election should therefore review both the deed’s powers and how decisions will be made and documented over time.
Testamentary trusts: the wording of the Will matters
The proposed exclusion for testamentary trusts requires particular care.
For trusts established on or after 1 July 2028, the introduced provisions restrict the permitted beneficiary class. A company or another trust within that class may prevent the exclusion from applying, even if the trustee never distributes anything to that beneficiary.
This matters because many Wills use broad beneficiary definitions to preserve flexibility. Signing the Will before commencement would not, by itself, establish that a trust arising later qualifies for the exclusion.
Wills containing testamentary trusts should therefore be reviewed against the proposed rules, particularly where companies, family trusts or other entities are potential beneficiaries. The position also warrants attention where a Will-maker may later lose capacity to make changes.
The source of trust property matters as well. The proposed rules distinguish estate-derived property from unrelated assets introduced into a testamentary trust and include integrity provisions.
Families should obtain advice before changing beneficiary classes or transferring assets into or out of a testamentary trust.
Restructuring relief is conditional
The proposed rollover would operate from 1 July 2027 to 30 June 2030, allowing qualifying restructures without specified immediate income-tax consequences.
It is not a general exemption for any transfer between family entities. Conditions concern the assets transferred, continuity of ownership, residency and the replacement structure. Ongoing requirements may also affect the replacement entity’s ownership rights.
A restructure should therefore be designed around the family’s intended long-term ownership and succession arrangements, rather than assuming those arrangements can be restored afterwards.
State duty remains a separate question
Commonwealth income-tax rollover relief does not itself remove State or Territory duty.
Duty may arise on transfers of land or other dutiable property, or under landholder provisions. The proposed EET election also requires separate consideration: the absence of a registered transfer does not, by itself, settle the State duty position.
The outcome will depend on the relevant jurisdiction, the final legislation and the steps actually taken. Trustees should avoid assuming that an election and a deed amendment converting a trust into a fixed trust have identical legal consequences.
What should trustees and family groups do now?
A review should identify:
each trust deed and subsequent variation;
trust assets, liabilities and financing arrangements;
corporate beneficiaries and unpaid present entitlements;
companies whose shares are held through discretionary trusts;
existing distribution practices and likely future needs; and
Wills, appointor succession and trustee control arrangements.
Appropriate legal and taxation advice can help determine whether to retain the existing trust arrangements, elect to be excluded from the minimum tax regime or restructure.
The proposals may change during the parliamentary process or through future government policy, including following the next federal election. However, trustees should not defer reviewing their arrangements on the assumption that the measures will be withdrawn or repealed.
A review can begin now, with any decision to implement changes informed by the legislation ultimately enacted, available relief and the family’s broader objectives.
A discretionary trust may remain appropriate despite a less favourable tax outcome. Conversely, an option producing an immediate tax saving may be unsuitable if it compromises asset protection, future flexibility or succession arrangements.
How KCT Legal can assist
KCT Legal assists trustees, business owners and family groups with trust deed reviews, testamentary trust provisions, control and succession arrangements, and the legal consequences of proposed restructures.
We work with clients’ accountants and tax advisers to help ensure that ownership structures and legal documents support their commercial and family objectives.
This article reflects material available as at 21 October 2026. The proposed reforms remain subject to the parliamentary process, further legislation and implementation measures. It provides general information only and does not constitute legal, taxation or financial advice.