TITLE: Australia’s Proposed 30% Minimum Tax on Discretionary Trusts: What Trustees Should Know Before 1 July 2028
On 14 October 2026, the Australian Government introduced legislation to impose a 30% minimum effective tax rate on certain discretionary trusts from 1 July 2028. The Bills are not yet law, but Australian trustees and business owners can start organising their records and checking how the proposed rules could affect their reporting.
Know what Parliament is considering
Treasurer Jim Chalmers introduced two Bills in Federal Parliament: the Treasury Laws Amendment (Tax Reform No. 3) Bill 2026 and the companion Income Tax Rates Amendment (Minimum Tax on Discretionary Trusts) Bill 2026.
The proposals give effect to discretionary trust reforms announced in the 2026–27 Federal Budget. Treasury estimates they would raise approximately $4.3 billion in additional receipts over the forward estimates. The Budget’s tax reform summary also sets out a proposed three-year rollover relief period for eligible restructures.
The Bills have not passed Parliament. Their terms could change during the legislative process, so trustees should treat the details as proposals rather than current tax obligations.
Understand how the proposed 30% minimum works
From 1 July 2028, affected discretionary trusts would generally face a minimum effective tax rate of 30% on specified trust income. The tax would be imposed at trustee level.
Eligible non-corporate beneficiaries would generally be entitled to a non-refundable tax offset for their share of tax paid by the trustee. A non-refundable offset can reduce tax otherwise payable, but it cannot itself be paid out as a refund. Corporate beneficiaries would not be eligible for this offset.
This means it will be important to track trust income, beneficiary allocations, the tax paid by the trustee and the legal status of each beneficiary. Accurate records will help support the trust’s returns and the amounts reported by beneficiaries.
Check whether an exclusion may apply
The proposed rules do not apply in the same way to every trust or every category of income. The Bills and explanatory materials describe exclusions that include:
- Fixed trusts, deceased estates, complying superannuation entities, special disability trusts and employee share trusts.
- Certain primary production income and income relating to vulnerable minors.
- Certain income connected with charitable or not-for-profit beneficiaries.
- Some income subject to non-resident withholding tax.
- Qualifying income from genuine testamentary trusts.
These exclusions depend on detailed conditions. Do not assume that a trust or income item qualifies based only on its name or how it has been treated in past returns. Keep the trust deed, accounts, beneficiary records and supporting documents together so the relevant facts can be checked.
For businesses operating across borders, such as Australian digital businesses and international sellers, it is also important to keep Australian trust reporting distinct from overseas tax and indirect-tax records. A clear entity and transaction trail makes ongoing compliance easier to manage.
Keep testamentary trust records clear
The proposal provides an exclusion for qualifying income derived from assets originating from a deceased estate. However, the treatment is not unlimited.
Income from unrelated assets added to a testamentary trust after Budget night on 12 May 2026 may fall within the minimum-tax rules. For testamentary trusts established from 1 July 2028, the proposed exclusion would generally be restricted where the trust deed includes corporate beneficiaries.
Trustees should maintain clear records showing where trust assets came from and how income relates to those assets. That evidence can help distinguish qualifying estate-origin assets from assets introduced separately. The Explanatory Memorandum to the Bill sets out further detail on the proposed conditions.
Prepare for the two proposed pathways
The Bills outline two different pathways for eligible existing discretionary trusts. Trustees will need to assess the requirements carefully: the proposed rules do not allow a trust to use both the election and the transitional rollover relief.
Option 1: Review the proposed Excluded Election Trust election
Eligible existing discretionary trusts may be able to elect to become an Excluded Election Trust (EET). The trustee would nominate beneficiaries and set their shares of trust income and non-income earnings.
The election would require distributions to follow the nominated proportions. Departing from them could automatically revoke the election and expose the trustee to tax at the top marginal rate plus the Medicare levy for the relevant income year. This pathway therefore depends on reliable distribution controls and records.
Option 2: Check the transitional rollover window
Eligible restructures undertaken from 1 July 2027 to 30 June 2030 may qualify for rollover relief when assets are transferred from a discretionary trust to a company or fixed trust. Subject to the proposed eligibility rules, this could allow the transfer without immediate income-tax consequences.
The relief is voluntary and is not limited to trading businesses. Trustees considering this route should allow time to identify the assets and entities involved, check the proposed conditions and keep records of any transfer. Rollover relief does not remove the need to meet other applicable requirements.
Use this preparation checklist
There is time before the proposed minimum tax begins, but early organisation can reduce avoidable pressure later. Start with these practical steps:
- Collect the trust documents. Keep the deed and amendments, financial statements, tax returns and distribution records in one accessible file.
- Map beneficiaries and entities. Record which beneficiaries are individuals, companies or other entities, and reconcile the list with the trust deed.
- Separate income categories. Maintain clear records for income that may be excluded, including qualifying primary production or testamentary-trust income.
- Track distribution decisions. Record what was resolved, when it was resolved, who received each distribution and how the amounts align with the accounts.
- Put key dates in your calendar. Note the proposed 1 July 2027 start of the rollover window and the proposed 1 July 2028 commencement of the minimum-tax rules.
- Monitor the Bills. Check their progress and any revised legislation or ATO guidance before changing how the trust operates.
Business groups have raised concerns about the potential compliance costs, as reported by the Australian Financial Review on 14 October 2026. This is another reason to keep records orderly and avoid leaving a review of the trust’s reporting processes until the proposed commencement date is close.
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