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Budget Progress Report | Discretionary Trust Minimum Tax: New Relief Proposed

Australia’s proposed 30% discretionary trust minimum tax has taken another significant step towards becoming law, with Treasury releasing exposure draft legislation on 3 September 2026.

First announced as part of the 2026/27 Federal Budget, the measure is intended to introduce a minimum 30% tax rate on certain income earned through discretionary trusts from 1 July 2028. Broadly, the proposed rules would require a relevant trustee to pay sufficient tax to bring the tax on the trust’s ‘minimum tax income’ to at least 30%, after taking relevant trustee-level tax into account. Non-corporate beneficiaries would generally receive a non-refundable tax offset for minimum tax attributable to their share of trust income. Corporate beneficiaries would not receive this offset. Since then, consultation has focused on how the new rules will operate, which trusts and types of income will be excluded, and what options will be available to businesses and families that may be affected.

The latest exposure draft provides considerably more detail. Most notably, it introduces a new option that could allow eligible discretionary trusts to remain outside the minimum tax regime without restructuring into a company or fixed trust.

This represents an important development for business owners and families currently operating through discretionary trusts, but the legislation remains in draft form and further changes are possible.

As part of our ongoing Budget Progress Report series, we look at what has changed, what the proposed new rules could mean and what trust owners should be considering now.

What’s Changed?

A New Option for Discretionary Trusts

One of the most significant developments is the proposed introduction of an Excluded Election Trust (EET) regime. Under the exposure draft, a minimum tax on a trust that exists on 1 July 2028 could make a one-off EET election in its first income year commencing on or after that date.

Where a valid election is in place, the trust would not be treated as a minimum tax trust and therefore would not be subject to the proposed 30% minimum tax on its minimum tax income.

The election would require the trustee to nominate the beneficiaries who may receive distributions and specify each beneficiary’s fixed share. Importantly, each beneficiary’s nominated share of income and capital must correspond, and the nominated shares must collectively account for 100% of both income and capital.

This is substantially different from the flexibility traditionally associated with a discretionary trust, where trustees generally have discretion over which eligible beneficiaries receive distributions and in what proportions.

However, the EET provides a potential alternative for trusts that would otherwise consider restructuring into a company or fixed trust to avoid being captured by the minimum tax. It is important to note that EET and restructure relief are mutually exclusive, and this exclusivity is stricter than it might first appear. A trustee cannot use restructure relief to move some assets and then rely on the EET for what’s left in the trust.  The choice applies to the whole trust, not on an asset-by-asset basis. Nor can a trustee commence restructure relief in an earlier year (e.g. 2027‑28) and then switch to an EET in 2028‑29.  The draft legislation bars an EET election where the trustee “has chosen to apply a roll-over… regardless of whether the roll-over is completed or any assets not transferred.” In practice, a trustee would need decide upfront which pathway to pursue for the trust as a whole, before either relief is accessed.

More Trusts and Income Will Be Excluded

The exposure draft also provides further detail about which trusts are proposed to sit outside the minimum tax regime.

The proposed definition of a minimum tax trust excludes specified entities including fixed trusts, special disability trusts, deceased estates under administration and complying superannuation entities.

Treasury has also broadened the proposed definition of a fixed trust. This is intended to ensure that a range of commercial trusts without material discretionary elements are not inadvertently captured by the new rules.

The draft also excludes:

• Qualifying income of discretionary testamentary trusts established for genuine testamentary purposes, subject to tracing, beneficiary and integrity conditions,
• Qualifying primary production income, and
• Qualifying amounts attributable to eligible charities, deductible gift recipients and certain other exempt entities, subject to the draft conditions.

Another change concerns franking credits. Under the exposure draft, excess franking credits relating to income subject to the minimum tax would be refundable after the trustee has used available credits to offset its tax liability.

What It Means

EETs Could Provide an Alternative to Restructuring

The EET regime addresses one of the practical problems raised during consultation: restructuring an existing discretionary trust may have significant consequences beyond Commonwealth income tax. An EET election would not necessarily convert the underlying trust into a fixed trust under general trust law; rather, while the election remains valid, the trust would be treated as outside the minimum-tax regime for these purposes.

Moving assets into a company or fixed trust can potentially involve state or territory duties and may also affect licences, contracts, financing arrangements and other commercial agreements.

The proposed EET regime could allow an eligible trust to remain in its existing legal structure while being excluded from the minimum tax.

There is, however, a significant trade-off.

Once an EET election is made, the trustee would generally have very limited ability to change the nominated beneficiaries or their proportions. Under the current exposure draft, changes would only be permitted in narrow circumstances, including the death of a nominated beneficiary or certain relationship breakdowns.

The election therefore effectively exchanges much of the flexibility of a discretionary trust for greater certainty over the trust’s tax treatment.

Getting the Election Wrong Could Have Significant Consequences

The proposed rules also make ongoing compliance particularly important.

An EET could be automatically revoked in certain circumstances, including where the trustee fails to make distributions in accordance with the nominated proportions or particular changes occur to a nominated corporate beneficiary.

A trustee could also voluntarily revoke an election, but once revoked, the election generally could not be reinstated.

The consequences of revocation may be substantial. Under the exposure draft, beneficiaries could be treated as though they were never presently entitled to trust income in the year of revocation, with the trustee instead assessed on the trust’s net income at the top marginal individual tax rate plus Medicare levy.

For this reason, an EET should not simply be viewed as an easy way to opt out of the minimum tax. If the legislation proceeds in its current form, deciding whether to make an election would require careful consideration of the trust’s beneficiaries, future distribution requirements, ownership structures and longer-term succession plans.

What About Bucket Companies?

The treatment of corporate beneficiaries, commonly referred to as “bucket companies”, also remains an important part of the proposed reforms.

Under the broader minimum tax framework, a corporate beneficiary would not receive a tax offset for minimum tax already paid by a discretionary trust on income distributed to it. This is intended to prevent the minimum tax being circumvented by distributing trust income through a company and could result in additional taxation where traditional bucket company strategies continue to be used.

The proposed EET regime creates a potential exception because companies may be nominated as beneficiaries of an EET.

However, doing so would require the company to receive its predetermined share of both income and capital, while the trust would need to continue complying with the EET requirements. This makes the suitability of the arrangement highly dependent on the circumstances of the trust and its beneficiaries. A nominated company must be an “eligible company” (e.g. classes of shares with different rights to income and capital).

What Still Isn’t Law

Despite the additional detail now available, the proposed discretionary trust minimum tax has not yet become law.

Treasury released the exposure draft on 3 September 2026 and consultation remains open until 18 September 2026. Feedback received during this process may result in further changes before legislation is introduced to Parliament.

Some administrative and integrity components are also expected to be dealt with through subsequent legislation.

This is an important distinction for anyone considering changing an existing trust structure. While the exposure draft provides a much clearer indication of how the Government intends the minimum tax and EET regime to operate, significant restructuring decisions should not be made solely on the assumption that the draft provisions will become law unchanged.

Other elements of the broader 2026/27 Budget tax reform package have progressed further. The Government has confirmed that legislation making the $20,000 instant asset write-off permanent and reintroducing loss carry-back passed Parliament in August.

The progress of individual measures reinforces why it is important to consider each Budget reform according to its current legislative status rather than treating the Budget announcement itself as the final law.

What You Can Do

For most discretionary trust owners, there is no need to make an immediate structural change.

However, the release of exposure draft legislation means there is now considerably more information available to begin assessing how the reforms could affect existing arrangements.

If you operate a business, hold investments or manage family wealth through a discretionary trust, it may be worthwhile:

• reviewing how income and capital are currently distributed between beneficiaries;
• identifying whether your trust currently uses a corporate beneficiary or bucket company;
• considering whether the proposed 30% minimum tax could apply to your trust;
• assessing the importance of retaining discretion over future distributions;
• considering whether an EET or potential restructure could eventually be appropriate; and
• reviewing longer-term succession and estate planning arrangements that could be affected by locking in beneficiaries and distribution proportions.

The key at this stage is to understand your position rather than act prematurely.

For some trusts, retaining flexibility and operating within the minimum tax regime may ultimately be appropriate. Others may prefer the certainty offered by an EET or consider restructuring under the proposed rollover relief.

The right approach will depend on the trust’s purpose, assets, beneficiaries and broader financial circumstances.

What Happens Next?

Consultation on the exposure draft legislation closes on 18 September 2026.

Treasury will consider submissions before the Government progresses the legislation through the parliamentary process. Further legislation is also expected to address administrative, collection, notification and integrity arrangements associated with the minimum tax.

If enacted as proposed, the minimum tax would commence from 1 July 2028, while the Government’s three-year rollover relief for trusts wishing to restructure is proposed to become available from 1 July 2027.

That timeline provides some breathing room, but it also makes the coming stages of the legislative process important for anyone currently using a discretionary trust.

The introduction of the EET regime demonstrates why following these reforms beyond Budget night matters. The original announcement established the broad direction of the policy, but consultation has now produced a significant new option for affected trusts.

Through our Budget Progress Report series, we will continue monitoring these developments as they move through consultation and Parliament, helping you understand what has changed, what has become law and what it could mean for your business and financial affairs.

If you currently operate through a discretionary trust and are unsure how the proposed reforms around minimum tax could affect you, now may be a good time to discuss your existing structure and longer-term objectives with your adviser. Understanding your options early can help you prepare for potential changes without making decisions before the final rules are known. You can reach out to the McKinley Plowman tax team via our website or call us on (08) 9301 2200.

written by:

Dean Birch

With close to two decades of experience in tax consulting across Australia and the United Kingdom, Dean Birch is a highly regarded tax specialist known for his ability to interpret complex legislation and translate it into practical, commercial outcomes for clients. His career spans public practice, large corporate environments and hands-on management roles, giving him a well-rounded understanding of both technical tax issues and real-world business challenges.

Dean specialises in providing tax advisory services to corporate entities, government agencies, not-for-profit organisations, Aboriginal corporations and small to medium enterprises. His areas of expertise include income tax, indirect taxes, employment taxes, Fringe Benefits Tax, GST, capital gains tax, salary packaging, fuel tax credits, PAYG and superannuation guarantee matters. He is particularly valued for his pragmatic approach and his ability to deliver clear, workable solutions in highly regulated and complex environments.

Having spent more than 15 years in senior management roles within a multinational organisation in the UK, Dean brings strong commercial insight to his advisory work. This experience enables him to look beyond compliance and focus on how tax outcomes support broader operational and strategic objectives.

Committed to delivering high-quality advice and supporting the broader advisory team, Dean plays an active role in technical training and mentoring. He is known for his practical mindset, clear communication style and collaborative approach, all of which align strongly with McKinley Plowman’s commitment to delivering thoughtful, client-focused advice.

Outside of work, Dean has a wide range of interests. He’s a classic car enthusiast and proudly owns a Triumph Spitfire back in the UK, though he admits it’s getting far less road time since he moved to Australia! A long-time Nottingham Forest supporter, Dean continues to cheer them on from afar (no matter how nerve-wracking the season gets). When he’s not following the football, you’ll often find him exploring new places, enjoying good coffee, or catching up with friends.