The proposed 30% minimum tax on discretionary trusts has moved another step closer, with legislation introduced into Federal Parliament on 14 October 2026.

The changes, proposed to take effect from 1 July 2028, could have significant implications for businesses, investors and family groups that use discretionary trusts.

The Bill largely follows the draft legislation released in September, which we covered in our previous article, 30% minimum tax on discretionary trusts: new draft legislation released. However, several changes have been made to clarify how the rules will operate and provide greater flexibility for certain trust structures.

While the legislation has not yet passed Parliament, it provides a clearer picture of how the proposed reforms could affect existing arrangements.

We take a look at the key developments and what those with discretionary trusts should be considering.

What remains unchanged from the September draft?

The main features of the proposed rules remain largely unchanged.

Affected discretionary trusts would generally be subject to a minimum tax rate of 30% on relevant trust income from 1 July 2028.

The proposed framework also continues to include:

• A non-refundable tax offset for eligible non-corporate beneficiaries where minimum tax has been paid by the trustee
• Restructuring relief for eligible transfers between 1 July 2027 and 30 June 2030
• An exclusion for taxable primary production income
• An alternative excluded election trust (EET) option for eligible existing trusts prepared to nominate beneficiaries and fixed distribution proportions.

The legislation does, however, provide further detail about how these rules would work in practice.

Changes to the definition of a fixed trust

Fixed trusts can fall outside the proposed minimum tax rules, making the definition of a fixed trust important in determining which structures will be affected.

The definition has been refined since the September draft, providing greater flexibility for trusts with certain discretionary features. These features would generally need to significantly affect beneficiaries’ rights to income or capital before preventing a trust from qualifying as fixed.

This may allow more trusts to fall outside the minimum tax rules, although how the definition applies will depend on individual trust arrangements.

Which trusts will be excluded?

Under the proposed legislation, the following types of trusts would be excluded from the minimum tax rules:

• Fixed trusts
• Deceased estates
• Special disability trusts
• Complying superannuation entities
• Employee share trusts
• Approved worker entitlement funds.

Widely held trusts and managed investment trusts have not received a blanket exclusion and may still need to satisfy the new fixed trust definition to remain outside the regime.

There will be scope for the Minister to exclude additional widely held or collective investment arrangements if required.

Potential tax implications for structures involving multiple trusts

One of the more significant concerns relates to structures where income passes through multiple trusts before reaching the ultimate beneficiary.

Under the proposed rules, where a trust subject to the minimum tax distributes income to another trust that is not subject to the minimum tax, the second trust may receive a tax offset that cannot be passed on to its beneficiaries.

This could result in the offset being effectively lost, potentially increasing the overall tax paid on that income.

Businesses and family groups with multiple trusts should consider how income currently moves through their structures and whether the proposed rules could result in additional tax.

Franking credits remain an issue

There is also an unresolved issue around franked dividends.

The intention appears to be that when a trust receives a franked dividend, the associated franking credit can be used to reduce the trust’s minimum tax liability.

However, concerns remain that the legislation as currently drafted may not achieve this outcome as intended.

This will be an important area to watch as the legislation progresses, particularly for trusts with significant dividend income.

Restructuring before the new rules commence

The proposed legislation includes restructuring relief for eligible transfers between 1 July 2027 and 30 June 2030, allowing affected trusts to restructure without triggering certain tax consequences that would ordinarily arise.

However, while this relief would remain available until 2030, the minimum tax is proposed to commence on 1 July 2028.

Trusts wanting to restructure before becoming subject to the new minimum tax may therefore need to complete the process by 30 June 2028.

This means the practical planning window may be shorter than the three-year restructuring period initially suggests.

What does the excluded election trust option mean?

Rather than restructuring, eligible existing trusts may be able to elect to become an excluded election trust (EET).

This would allow the trust to remain outside the minimum tax regime by nominating beneficiaries and fixed proportions of income distributions.

The Bill introduces some additional flexibility, including limited discretion for the Commissioner to overlook certain inadvertent errors and the ability to nominate particular classes of beneficiaries, such as registered charities.

However, the EET option comes with significant restrictions.

Changing beneficiaries or distribution proportions could result in the election being revoked, potentially triggering substantial tax consequences.

There may also be stamp duty implications for trusts holding property. State and territory revenue offices are considering how EETs will be treated and whether exemptions may apply.

For families and businesses considering this option, it’s important to think beyond their current circumstances and consider how their trust arrangements may need to change in future.

What happens next?

The legislation has been referred to the Senate Economics Legislation Committee, which is due to report by 13 November 2026.

Further legislation is also expected to address several outstanding areas, including capital gains tax, residency, administration and reporting requirements.

While the proposed reforms are becoming clearer, there are still details to be resolved before significant structural decisions should be made.

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If you have a discretionary trust, speak with your AFS advisor about what the proposed changes could mean for you and whether your existing structure should be reviewed.

This article contains general information only and should not be relied upon as taxation or financial advice. Professional advice should be sought for your specific circumstances.