DBA Lawyers services for trust changes

By Daniel Butler, Shaun Backhaus, Fraser Stead, Nick Walker on 30/09/2026 in Investments, Succession planning, Taxation, Trustee education

Background

The proposed changes to impose a minimum 30% tax on trusts from 1 July 2028 will substantially impact trusts, including discretionary trusts (DT), unit trusts, hybrid trusts and testamentary trusts.

This article provides a brief overview of the proposed changes and outlines how DBA Lawyers plans to assist advisers and clients.

What changes apply to discretionary trusts?

Broadly, from 1 July 2028, trustee of DTs will be required to pay a minimum 30% tax in respect of their minimum tax income. This type of trust will be known as a minimum tax trust (MTT) which is subject to the minimum 30% tax.

Note that individual and non-corporate beneficiaries will, from 1 July 2028, receive non-refundable tax offsets in respect of tax payable on minimum tax income they receive from an MTT. However, a corporate beneficiary will not obtain a tax offset. This will result in over a 60% rate of tax making distributions by MTTs to corporate beneficiaries from 1 July 2028 unattractive.

There are a number of trusts that will not be subject to the new 30% tax, including:

a fixed trust (as defined below);
the trust estate of a deceased person; and
an excluded election trust (EET).

Fixed trusts

A fixed trust is not subject to the 30% tax. A fixed trust is a trust where beneficiaries have fixed entitlements to the income and capital of the trust. There must be no ‘material discretionary elements’ affecting the entitlements or rights of the trust’s beneficiaries. A variation of the trust deed must either have the consent of all beneficiaries or must not adversely affect the rights or value of beneficiary entitlements.

There is no definition of the term ‘material discretionary elements’ but the draft legislation provides a list of factors that point to there being no, or some, of these elements. The Minister may also determine by legislative instrument that there are no, or some, of these (material discretionary) elements. Hopefully more clarity will follow once the legislation and Ministerial determinations are finalised.

A review of unit trust and hybrid trusts should be undertaken to determine what action may be needed.

Deceased estates and testamentary trusts

Deceased estates should not be subject to the 30% tax. However, from 1 July 2028 testamentary trusts (that may ‘evolve’ from a deceased estate) may be subject to the tax unless the trust is limited to beneficiaries who are an individual or a tax-exempt entity (eg, a charity). There are also a range of integrity rules that will apply to ensure the income of testamentary trusts is derived from the deceased person’s assets and ensure the trust is maintained for genuine testamentary purposes.

Wills and related estate planning documents will also need to be reviewed to see what action may be needed.

What if a trustee elects to be excluded from the minimum 30% tax?

A trust in existence at 1 July 2028 can make an election to become an EET for the 2028-29 income year and beyond. Broadly, this requires the trustee to fix the relevant share of income and capital to be distributed to eligible nominated beneficiaries for each future financial year (FY) until the election is revoked. An EET will not be subject to the new 30% tax until the trustee intentionally or unintentionally revokes its EET status (see the example below).

Naturally, fixing the share of distributions will remove a key advantage of having a DT, being the flexibility to distribute different amounts to different beneficiaries each FY. However, the potential benefit of becoming an EET is that, among other things, it will exclude the 30% minimum tax payable by the trustee, allow distributions to a corporate beneficiary without double tax and allow franking credits to flow through to beneficiaries.

A trust that elects to become an EET can revoke the election. It will also be easy for the election to be unintentionally automatically revoked, eg, a distribution that was fixed at 50% to each of mum and dad that was made as 51% to mum and 49% to dad due to a calculation error would preclude the trust from the EET regime for ever. The trust would then revert to an MTT in the following FY after being taxed at 47% in the FY in which the election is revoked.

Rollover relief for tax purposes

A DT may be eligible for roll-over relief from income tax and capital gains tax (CGT) on the transfer of assets out of a DT to an individual, a fixed trust, a company or a partnership subject to certain terms and conditions. This relief is designed to encourage trusts to be transfer their assets to another eligible entity and be wound up. This relief will only be available for a 3-year period starting from 1 July 2027 and ending on 30 June 2030.

Broadly, assets transfers that qualify for roll-over relief give rise to no immediate income tax or CGT liability until the asset is subsequently disposed of by the transferee. The transferee broadly assumes the transferor’s cost base of CGT assets and there are other rules relating to the value for trading stock, depreciable and other assets.

Roll-over relief is designed to allow assets to be transferred to one transferee unless they are transferred to a partnership. Rollover relief is not available on asset transfers to another DT.

Note that roll-over relief does not provide protection against state taxes like stamp duty nor will it provide protection against other taxes such as GST and FBT.

For a more detailed outline of the changes

Our recent newsfeed is available here that provides a more detailed outline:

https://www.dbalawyers.com.au/investments/draft-legislation-released-on-taxation-of-trusts/

DBA Lawyers’ services

Review and vary trust deeds

We can review your trust deed and related information to provide feedback on, among other things:

Whether a unit trust will qualify as a fixed trust that will not be subject to the new 30% tax (eg, SMSFs holding units in unit trusts should check how the trust will be treated).
What the tax treatment will be in relation to a trust in view of recent developments (eg, will your trust be treated as an MTT, EET, fixed trust or some other treatment).
What options are available and what other factors should be considered in deciding whether to remain an MTT, elect to become an EET, elect for roll-over relief, wind up the trust or adopt some other course of action?
We can advise on changes to documents including preparing variations to trust deeds to provide the necessary powers to comply with the changes and to make relevant elections.
We also plan to offer a range of documents to assist in understanding these changes and for advisers to communicate the changes and options to clients.

Review of constitutions

The trust changes also require many constitutions to be updated to eliminate any ‘material discretionary elements’. Most constitutions we review, for instance, would not satisfy the ‘eligible company’ tests for the proposed EET regime or roll-over relief. We can review your constitution and related information to provide feedback on, among other things:

Whether the company will qualify as an ‘eligible company’ that can be used to roll-over assets without triggering an income tax or CGT liability.
Whether the company will qualify as an ‘eligible company’ that can receive franked dividends as a corporate beneficiary from an EET without incurring the 30% minimum tax.
Whether the company has ‘material discretionary elements’ and appropriate ‘governance’ in place for the proposed new rules. (Naturally and as noted above, we still need to see the final legislation and Ministerial determinations.)

Other services

We can review your structures and succession plans to provide feedback on, among other things:

Whether your will and succession plans require an update in view of the proposed changes especially if your will includes testamentary trust provisions.
Provide advice on taxation matters including state taxes in Victoria. We can refer you to state/territory tax experts in other jurisdictions.
We offer advice, training, and support to assist you on any queries.

Conclusions

The time period to start the process of review and analysis of each trust and company needs to consider that 1 July 2027 is not far away. Some may wish to restructure before this time and others afterwards. In any event, there is considerable time that is needed to brief advisers, to make some of the decisions and then to prepare the relevant documents. For more complex family and business arrangement, we recommend the process be commenced sooner rather than later to ensure things can be completed in a considered and timely manner.

Naturally, DBA Lawyers would be pleased to assist you in managing the above changes. Please call or email us if you need assistance.

Top Navigation

Navigation