The Government has released exposure draft legislation proposing a 30% minimum tax on the income of certain discretionary trusts from 1 July 2028, subject to proposed exclusions and other rules.
The proposed changes could affect individuals, families and business owners who use discretionary trusts to hold investments, operate businesses or manage family wealth.
The reforms are not yet law and the final legislation may change. However, the exposure draft provides trustees with an opportunity to understand the proposed rules and consider how their existing arrangements could be affected.
What is being proposed?
Under the proposed reforms, a 30% minimum tax would apply to the taxable income of certain discretionary trusts from 1 July 2028, subject to the proposed exclusions and rules.
The tax would generally be paid by the trustee, reflecting the trustee’s control over trust distributions. Beneficiaries would generally continue to include their trust distributions in their tax returns. Non-corporate beneficiaries would generally receive a non-refundable tax offset for minimum tax paid by the trustee, while corporate beneficiaries would not receive the equivalent offset.
The impact will depend on the trust’s income, beneficiaries and distribution arrangements. Not all discretionary trusts or types of income will be subject to the proposed minimum tax.
Proposed exclusions
The exposure draft proposes exclusions for a range of trusts and income, including:
- charitable trusts
- special disability trusts
- complying superannuation funds
- deceased estates
- certain testamentary trusts and testamentary trust income, subject to the proposed conditions
- primary production income
- certain income relating to vulnerable minors
- certain amounts subject to non-resident withholding tax
- distributions to registered charities and deductible gift recipients
- certain fixed trusts, including specified widely held and commercial trust arrangements.
The detailed requirements will be important when assessing whether a particular trust or income falls within an exclusion.
Excluded Election Trust (EET) election
One of the key features of the proposed reforms is the Excluded Election Trust (EET) election.
Under the exposure draft, certain discretionary trusts in existence on 1 July 2028 could make an EET election. The trustee would nominate eligible beneficiaries and specify fixed proportions of the trust’s income and capital for those beneficiaries. The nominated proportions must satisfy the requirements of the proposed rules, including that each beneficiary’s proportion of income and capital is the same and the proportions total 100%.
If the requirements continue to be met, the trust would be excluded from the proposed minimum tax regime. However, making the election would significantly restrict the trustee’s flexibility over future distributions.
What about restructuring?
The exposure draft proposes transitional rollover relief for eligible restructures out of a discretionary trust.
The proposed relief would be available for three years from 1 July 2027 and is intended to reduce certain income tax consequences that could otherwise arise from an eligible restructure.
However, restructuring may have other consequences. State or territory duties, legal costs, financing arrangements, asset protection and commercial considerations should all be assessed before changes are made.
What should trustees consider?
While the proposed discretionary trust tax changes are not yet law, trustees may wish to review:
- how the trust is currently structured and used
- the types of assets and income held by the trust
- current and intended beneficiaries
- existing distribution patterns
- the importance of retaining distribution flexibility
- whether an alternative structure may better suit the trust’s long-term objectives
- the broader tax, asset protection and succession objectives of the trust
Tax should not be considered in isolation. A trust structure that is appropriate from a tax perspective may not necessarily be the most suitable structure for succession or asset protection purposes.
What happens next
Consultation on the exposure draft closed on 18 September 2026. The Government has indicated that further legislation will be introduced to finalise the reforms, including administrative and integrity arrangements.
The final rules may therefore differ from the current proposals.
Trustees should avoid making structural decisions based solely on the exposure draft. However, reviewing existing arrangements early may provide more time to understand the potential impact and assess the available options.
Planning ahead
If you have a discretionary trust, speaking with your Wilson Pateras adviser can help you understand whether the proposed changes could affect your trust and what options may need to be considered if the reforms proceed.
As the legislation is not yet law and may change, trustees should consider their circumstances before making any changes to their existing arrangements.
This content has been prepared by Wilson Pateras to further our commitment to proactive services and advice for our clients, by providing current information and events. Any advice is of a general nature only and does not take into account your personal objectives or financial situation. Before making any decision, you should consider your particular circumstances and whether the information is suitable to your needs including by seeking professional advice. You should also read any relevant disclosure documents. Whilst every effort has been made to verify the accuracy of this information, Wilson Pateras, its officers, employees and agents disclaim all liability, to the extent permissible by law, for any error, inaccuracy in, or omission from, the information contained above including any loss or damage suffered by any person directly or indirectly through relying on this information. Liability limited by a scheme approved under Professional Standards Legislation.