Australia’s tax landscape moved quickly today. The Federal Government released exposure draft legislation for the proposed 30% minimum tax on discretionary trusts, while the ATO warned taxpayers about interest and penalties following significantly understated PAYG instalment variations.
The changes matter to family businesses, ecommerce brands, digital businesses and growing SMEs in Sydney, Melbourne, Brisbane, Perth, Adelaide and across Australia.
This update explains what has changed, what remains draft, and the compliance steps you should take now.
Review the new trust election before you consider restructuring
Treasurer Jim Chalmers released exposure draft legislation on 3 September 2026 for the proposed 30% minimum tax on discretionary trusts.
The measure was announced in the 2026–27 Federal Budget and is intended to apply from 1 July 2028. The draft legislation provides a significant alternative for eligible existing discretionary trusts.
A discretionary trust that exists by 1 July 2028 may elect to make fixed distributions to pre-nominated beneficiaries. If the trust satisfies the election requirements, the 30% minimum tax will not apply.
This is important because the election is designed to operate without requiring a trust restructure. As a result, it is not expected to create state or territory stamp duty charges associated with transferring assets or changing beneficial ownership.
That may be especially relevant for businesses holding valuable assets or property in Queensland and Western Australia, where stamp duty costs can be substantial.
The proposed election can cover pre-nominated:
- Individuals.
- Eligible companies.
- Eligible trusts.
- Multiple beneficiaries, with no stated limit on the number nominated.
However, the election trades flexibility for certainty. Beneficiaries can generally only be added or changed following events such as death or family breakdown.
You should not treat the election as a routine distribution resolution. It will require reliable records, consistent calculations and ongoing monitoring.
Keep distributions consistent to protect the exemption
The election may be revoked by the trustee. It will also be automatically revoked if the trustee makes distributions inconsistent with the elected fixed-distribution arrangement.
A breach may expose the trustee to tax at the top marginal tax rate plus the Medicare levy for that year.
This creates an operational compliance requirement. The trust must not simply make a different distribution because cash flow changed, a beneficiary’s tax rate changed or the business had an unexpectedly strong quarter.
Before relying on the election, you should:
- Review the trust deed and confirm the permitted beneficiary classes.
- Record every nominated beneficiary and the fixed percentage or amount applying to them.
- Model the arrangement against expected business profits, losses, franking credits and cash distributions.
- Reconcile accounting records to trustee resolutions and tax return information.
- Establish a review process before each distribution decision.
For an ecommerce or digital business, this is particularly important where income can change quickly because of marketplace sales, foreign exchange movements, advertising costs or cross-border inventory.
The exposure draft is not yet final law. The final rules may change before Parliament passes the legislation.
Check whether your trust qualifies for an exclusion
The proposed minimum tax will not apply to every trust or every type of income.
The draft legislation provides exemptions or exclusions for several categories, including:
- Fixed trusts.
- Complying superannuation funds.
- Special disability trusts.
- Testamentary trusts established for genuine testamentary purposes.
- Deceased estates.
- Charitable trusts.
- Certain primary production income.
- Certain income relating to vulnerable minors.
Distributions to registered charities and deductible gift recipients are also intended to be fully exempt from the minimum tax.
Distributions to other income-tax-exempt entities, such as sporting clubs, are proposed to be exempt up to a reasonable cap. That cap is still to be finalised following consultation.
You should classify the trust and the relevant income carefully. A trust may contain different types of income, beneficiaries and activities. Do not assume that one exclusion automatically protects every distribution made by the trust.
Compare the election with rollover relief
The Government is also proposing expanded rollover relief for taxpayers who want to restructure out of a discretionary trust.
The relief is intended to apply for three years from 1 July 2027. It is designed to help transfer assets into arrangements that are not discretionary trusts, subject to the final legislative conditions.
This may provide income tax and capital gains tax relief. However, federal rollover relief does not automatically remove state or territory stamp duty.
You must therefore compare two separate compliance pathways:
Option one: elect fixed distributions
- Keep the existing discretionary trust.
- Avoid a formal restructure.
- Potentially avoid a stamp duty event.
- Accept restrictions on future beneficiary changes.
- Maintain strict distribution compliance.
Option two: restructure
- Move assets or operations into another eligible structure.
- Consider the proposed federal rollover relief.
- Review capital gains tax and income tax consequences.
- Check state and territory stamp duty separately.
- Update banking, payroll, GST and reporting processes.
The correct decision will depend on the trust deed, assets, beneficiaries, business activity and expected future growth. Your first step should be to model both options using current financial records.
The Government estimates that the measure could raise approximately A$4.5 billion in its first full year, 2029–30. Treasury has also estimated that around 350,000 active small businesses operated through discretionary trusts in 2022–23, with many businesses expected either to pay no additional tax or avoid restructuring.
Submit trust reform feedback by 18 September
Consultation on the exposure draft closes on 18 September 2026.
The Government has indicated that it intends to pass the legislation before Christmas. This gives trustees, business owners and professional bodies a short period to identify practical concerns.
You can review the exposure draft and consultation materials through the Treasury consultation hub. The Treasurer’s media release also summarises the proposed election, exclusions and rollover relief.
Even if you do not plan to submit feedback, use the deadline as an internal review date. By 18 September, you should know:
- Whether your trust may be within scope.
- Whether fixed distributions are commercially workable.
- Whether the trust owns land or other dutiable assets.
- Whether a restructure should be modelled.
- Which records need to be improved before 1 July 2028.
Review PAYG instalment variations before lodging
The ATO has also warned taxpayers and tax professionals that general interest charge (GIC) may apply where PAYG instalments have been significantly understated.
If your varied instalments are less than 85% of the total tax payable on your instalment income for the income year, GIC may apply to the difference and the tax shortfall. Penalties may also apply, depending on the circumstances.
This risk is relevant to businesses that reduced their instalments because:
- Sales appeared to be slowing.
- A major customer contract ended.
- Ecommerce advertising costs increased.
- Inventory purchases temporarily reduced taxable profit.
- A digital business expected a lower annual margin.
- Foreign exchange movements changed the expected result.
Do not vary simply because cash flow is tight. A variation should be supported by a reasonable estimate based on current records.
The ATO’s PAYG instalment variation guidance explains that taxpayers who are unsure may be better off not varying. Overpaid instalments are credited against the final tax liability and any excess is generally refunded after the tax return is processed.
If you use the instalment amount method, consider a variation where instalment income has changed significantly. If you use the instalment rate method, you will generally need a change in the taxable proportion of your income before varying.
If you cannot pay an instalment, still lodge the instalment notice. Contact the ATO to discuss a payment arrangement. Failing to lodge can create a separate compliance problem.
Taxpayers affected by floods or other disasters should keep evidence of the reasonable steps taken. The ATO recognises that taxpayers may not be penalised where they acted reasonably in difficult circumstances.
Record the 2026–27 small business changes
Two broader measures also matter to Australian SMEs.
From 1 July 2026, the $20,000 instant asset write-off is permanent for eligible small businesses with aggregated turnover of up to $10 million. Eligible assets costing less than $20,000 may qualify for an immediate deduction when first used or installed ready for use.
The Government has also reintroduced corporate loss carry-back from the 2026–27 income year. Eligible companies may be able to carry a current revenue loss back against taxable income from either of the two preceding income years, subject to the applicable limits, prior tax paid and franking account requirements.
These measures may affect purchasing, cash flow and year-end tax calculations. Keep asset invoices, installation dates, business-use evidence and loss records together. The Federal Budget tax reform page provides the Government’s overview.
Your Australia tax compliance checklist
Complete these actions now:
- Review your discretionary trust deed and beneficiary classes.
- Identify whether the trust may qualify for an exclusion.
- Model fixed-distribution and restructure scenarios.
- Record the 18 September 2026 consultation deadline.
- Monitor the final legislation before making long-term decisions.
- Maintain beneficiary nomination and trustee resolution records.
- Reconcile trust accounting data before each distribution.
- Review PAYG instalment variations before lodging activity statements.
- Keep evidence supporting any reduced instalment estimate.
- Check eligibility for the $20,000 instant asset write-off.
- Track corporate losses and prior tax paid for potential loss carry-back.
- Keep GST, BAS, payroll and bookkeeping records current.
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Frequently asked questions
When will the 30% minimum tax on Australian discretionary trusts start?
The proposed minimum tax is intended to apply from 1 July 2028. The exposure draft has been released, but the legislation is not yet final and should not be treated as enacted law until passed.
Can a discretionary trust avoid the minimum tax without restructuring?
Under the exposure draft, an eligible discretionary trust existing by 1 July 2028 may elect to make fixed distributions to pre-nominated beneficiaries. If the election requirements are met, the trust may avoid the minimum tax without a formal restructure.
Could the fixed-distribution election trigger stamp duty?
The election is designed not to require a restructure and is not expected to result in state or territory stamp duty. However, stamp duty is administered under state and territory law. Trustees with land or other dutiable assets should continue monitoring the position in their relevant jurisdiction.
What happens if PAYG instalments are varied too low?
If varied instalments are less than 85% of the relevant annual tax liability, the ATO may charge GIC on the shortfall. Penalties may also apply. If you are unsure about your estimate, the ATO says it may be safer not to vary because overpaid instalments are credited or refunded after assessment.
Does the $20,000 instant asset write-off apply to every Australian business?
No. Eligibility conditions apply, including the small business aggregated turnover threshold and the requirement that the asset is eligible and costs less than $20,000. Keep supporting records and confirm the rules before claiming the deduction.
