Family trusts may have another way to respond to the Government’s proposed 30 per cent minimum tax without moving their business or investments into a completely different structure.
When we first discussed the proposed changes, restructuring was one of the main options available to potentially affected trusts. Treasury has now released exposure draft legislation that introduces another possibility: an election to retain the trust while fixing how its income and capital are distributed.
This may sound like an easier alternative, but it would involve giving up much of the flexibility that makes a discretionary trust attractive in the first place.
First, an important status update
As at 22 September 2026, the proposed minimum tax is not law. Treasury released the exposure draft on 3 September 2026, and consultation closed on 18 September 2026. The ATO’s current guidance also states that the measure is not yet law.
Under the proposal, a 30 per cent minimum tax would apply to certain discretionary trusts for income years beginning on or after 1 July 2028. The trustee would pay the tax, with non-corporate beneficiaries generally receiving a non-refundable tax offset for their share of the tax paid.
The dates, eligibility requirements and operation of the measure may change before legislation is introduced and passed by Parliament.
What is the new election?
The exposure draft proposes an “excluded election trust” regime for discretionary trusts that exist on 1 July 2028.
An eligible trustee could nominate the beneficiaries who will receive the trust’s income and capital, together with the fixed percentage allocated to each beneficiary. The nominated percentages would need to:
- cover 100 per cent of the trust’s income and capital
- allocate the same percentage of income and capital to each beneficiary
- be followed every year while the election remains in force.
If these conditions were met, the trust would be excluded from the proposed minimum-tax regime.
For example, a trustee might nominate that two individuals and an eligible company will receive 50 per cent, 30 per cent and 20 per cent respectively of the trust’s income and capital each year. The trustee could not simply change those percentages the following year because one beneficiary had a higher or lower income.
This is only a simplified illustration. Whether a person, company or another trust could be nominated would depend on the final legislation, the trust deed and the beneficiary eligibility rules.
Why might the election appeal to some family businesses?
The most obvious attraction is that the trust could remain in place.
According to Treasury’s draft materials, the election would not require a restructure and is not expected to result in state or territory stamp duty. That could be significant for a trust holding property, business assets or long-term investments that may be costly or complicated to transfer.
It may also appeal where:
- the trust’s distribution pattern is already relatively stable
- the same family members are expected to benefit over the longer term
- the trust is retained for asset protection, control or succession reasons
- transferring assets could affect finance arrangements, contracts or licences.
However, “keeping the trust” does not mean keeping its existing flexibility for tax purposes. The trustee would need to follow the nominated proportions consistently if the trust were to remain excluded from the proposed minimum tax.
The trade-off is flexibility
A discretionary trust ordinarily allows the trustee to decide which beneficiaries receive income or capital and in what proportions. This can help a family respond to changing business, personal and financial circumstances.
The proposed election would substantially limit that flexibility.
Under the exposure draft, nominated beneficiaries could generally be changed only following the death of a nominated beneficiary or an eligible relationship breakdown. A voluntary revocation would be possible, but the election could not then be reinstated or made again.
The election and the proposed restructuring rollover would also be mutually exclusive. A trust could use one pathway or the other, but not both.
That makes the election a long-term structural decision, not simply an annual tax-planning choice.
What happens if the fixed proportions are not followed?
The proposed consequences are significant.
If the trustee made beneficiaries entitled to income or capital in proportions that did not match the nomination, the election could be automatically revoked. Under the current draft:
- the beneficiaries would be treated as not having been presently entitled for that income year
- the trustee could be taxed on the trust’s net income at the highest marginal rate plus the Medicare levy
- the proposed 30 per cent minimum tax would apply in later years
- the election could not be made again.
Other events could also trigger revocation, including certain changes affecting a nominated company or trust beneficiary.
This makes annual trust administration especially important. Existing ATO guidance on trustee resolutions says trustees of discretionary trusts generally need to make a resolution by 30 June to make beneficiaries presently entitled to trust income. If the proposed election becomes law, those annual resolutions would also need to align with the nominated percentages.
Election or restructuring?
Neither option would automatically be better.
The election could reduce the costs and disruption of moving assets, but it would restrict future distributions. Restructuring may provide a structure better suited to retaining profits or introducing new owners, but could affect asset protection, succession arrangements, finance, contracts and access to tax concessions.
Although the proposed federal rollover may remove some income tax consequences of restructuring, it would not necessarily remove state taxes, duties or other transaction costs.
For some businesses, remaining a discretionary trust and paying the proposed minimum tax may also be preferable to either alternative. The appropriate comparison will depend on what the trust owns, its beneficiaries, its use of corporate beneficiaries and the family’s longer-term plans.
What should trustees do now?
There is no need to make an irreversible change based on exposure draft legislation. There is, however, useful preparation that can begin now:
- Review the trust deed and identify who can benefit from the trust.
- Examine recent distribution patterns and whether they are likely to remain suitable.
- Consider how foreseeable deaths, retirements, relationship changes or succession plans could affect fixed allocations.
- Review any corporate beneficiary, including its share structure and ownership.
- Identify assets, loans, contracts and finance arrangements that could complicate a restructure.
- Model the broad outcomes of retaining the discretionary trust, making the proposed election or restructuring.
- Monitor the legislation and any further ATO guidance before making a final decision.
The exposure draft gives family businesses a clearer view of the choices that may lie ahead, but important details remain unsettled.
If your business or investments are held through a discretionary trust, contact us with any questions or to arrange advice specific to your circumstances. Structural decisions can have tax, duty, legal, asset-protection and succession consequences, so they should be considered carefully before any changes are made.
This article provides general information only and does not constitute personal financial, tax or legal advice.