The Federal Government has released exposure draft legislation for its proposed 30% minimum tax on discretionary trusts, due to commence from 1 July 2028. While the original Budget announcement focused primarily on the imposition of a minimum tax, the newly released legislation contains several significant concessions and alternative pathways that were not previously known.
Rollover relief for a three year period had been flagged in the budget announcement to allow restructuring out of existing discretionary trusts from 1 July 2027. There had been widespread concern from advisers and business groups that restructuring the ownership of assets from discretionary trusts to fixed trusts or companies would result in significant state transfer and stamp duties, notwithstanding there may have been income tax and CGT relief allowed under special rollover reliefs.
While releasing further details on the proposed rollover reliefs, Treasury has also responded to these industry concerns with the introduction of a new Excluded Election Trust (EET) regime. Trusts opting into this regime will be able to avoid the minimum 30% trust income tax entirely by electing to fix trust distributions to eligible nominated trust beneficiaries, including companies under this proposed new law.
The legislation remains in draft form and may change following consultation after 18 September.
Election – A New Choice for Existing Trusts
When the minimum tax was announced in the 2026-27 Federal Budget, many advisers assumed that affected trusts would ultimately need to restructure into companies or fixed trusts if they wished to avoid the negative impacts of the new regime.
The exposure draft legislation introduces a different option.
Trusts that exist on 1 July 2028 may elect to become an Excluded Election Trust. Where a valid election is made, the trust is excluded from the minimum tax regime entirely, provided strict ongoing requirements are met.
Instead of retaining annual discretion as to distributions, the trustee must nominate predetermined beneficiaries and fixed percentage entitlements. These elected beneficiaries can be legible individuals or companies but cannot have different percentages for income and capital. Careful consideration and forward planning will be key to maximising the opportunities allowed under this new election regime.
This requirement effectively converts the trust into a structure with fixed outcomes for tax purposes while preserving the legal discretionary trust structure and associated asset protection benefits.
Where a trust successfully elects into the EET regime, the trust is no longer a “minimum 30% tax trust” and the new minimum tax provisions do not apply at all. The EET election does not remove the need for annual trust distribution resolutions where they are required to establish present entitlements.
If a trustee distributes income or capital in a manner inconsistent with the nominated percentages for the EET, the election is automatically revoked. When this occurs:
- the beneficiaries are deemed never to have been presently entitled to that year’s income and capital;
- the trustee becomes liable for tax on the trust’s entire net income; and
- that tax is imposed at the top marginal tax rate, currently 47%.
Temporary Three-Year Roll-Over Relief Regime
The proposed relief will apply to transfers occurring between 1 July 2027 and 30 June 2030 and is intended to remove immediate income tax barriers for trustees who choose to move assets out of a discretionary trust structure before the minimum tax commences on 1 July 2028. Broadly, capital gains, balancing adjustments and other direct income tax consequences of the transfer are deferred rather than crystallised at the time of restructure, where the relevant conditions are satisfied. The recipient entity generally inherits the trust’s existing tax cost bases and tax history. The relief applies not only to business assets, but also investment and passive assets held in affected discretionary trusts.
The draft legislation also provides relief from family trust distribution tax where assets are transferred under the roll-over provisions.
Integrity and Anti-Avoidance Measures
The proposed roll-over is intended for a genuine migration away from a discretionary trust structure. As a result, trustees will generally need to transfer all relevant trust assets during the transitional period, with certain exclusions. If the restructure is not completed by 30 June 2030, the roll-over can be denied and earlier assessments may be amended.
Where a family trust election exists, individuals who ultimately own interests in the new structure must generally have been beneficiaries of the trust and members of the relevant family group before the transfer.
For four income years after completion of the restructure, the new entity must not introduce or retain material discretionary elements affecting ownership rights or economic interests. Treasury specifically identifies arrangements such as alphabet share structures that permit discretionary allocation of dividends as potentially problematic. If these requirements are breached, the Commissioner may amend prior assessments and effectively claw back the roll-over relief.
The two relief mechanisms are mutually exclusive. A trust that chooses the new Excluded Election Trust (EET) regime cannot later access the restructuring roll-over. Similarly, trustees using the roll-over cannot elect into the EET regime. This means a strategic choice with long-term implications must be made in this short timeframe.
What Should Trustees Do Now?
Although the legislation has not yet been enacted, the exposure draft highlights the need for affected families and business owners to start reviewing their structures well before 1 July 2028. For many family groups, the real decision may not be whether the minimum tax applies, but whether it is preferable to elect into the new fixed-beneficiary trust regime and preserve the existing trust structure or use the temporary roll-over relief to migrate to a company or fixed trust before 1 July 2028. The answer will depend on succession planning objectives, asset protection requirements, existing trust deeds, duty implications and the long-term desire for flexibility in family wealth structures. Partnering with the right team of advisers will be critical to ensure the right choices are made.
If you operate a business or investment structure through a discretionary trust, now is the time to review how these proposed changes may affect your long-term tax and succession planning strategy. Contact us to discuss your personal circumstances in detail.