TITLE: Trust Tax Reform and PAYG Compliance: Key Updates for Business Owners
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
The ATO has separately warned taxpayers about interest and penalties for significantly understated PAYG instalment variations.
PAYG instalments are designed to keep tax payments current throughout the year. Varying an instalment downwards is legitimate when circumstances change, but the ATO will scrutinise variations that are not supported by reasonable estimates.
If you vary your PAYG instalment, you must keep records showing how you calculated the new amount. The ATO can apply the general interest charge and administrative penalties where a variation is significantly below the correct amount.
A significantly understated variation includes one where the varied amount is less than 85% of the correct amount for that period. The ATO has indicated it will focus on taxpayers who repeatedly understate variations or who make large reductions without a clear basis.
Before varying a PAYG instalment, you should:
- Review current year income, deductions and tax offsets using updated records.
- Compare the variation with last year’s results and expected growth.
- Document the assumptions used, including any changes in business conditions.
- Revisit the variation if income changes again during the year.
For businesses with fluctuating revenue, such as ecommerce operators or consultancies, the safer approach is to recalculate and adjust instalments regularly rather than making one large downward variation.
If you receive an ATO notice about a PAYG variation, respond promptly. Provide the underlying calculations and any supporting evidence. Interest and penalties can be reduced in limited circumstances, but only where there is a genuine reasonable excuse and full cooperation.
The trust exposure draft and the ATO warning are separate but both require attention before the end of this month. Trustees should review distribution arrangements and consider whether the proposed election or a restructure is appropriate. All taxpayers who vary PAYG instalments should confirm their calculations are accurate and defensible. If you are uncertain about either area, professional advice should be obtained sooner rather than later.
