The Government has released draft legislation on the proposed minimum 30% tax on trustees of discretionary trusts (DTs). The draft legislation released on 3 September 2026 and represents a significant departure from what was initially outlined in the Federal Budget on 12 May 2026.
The release contained a fact sheet, four pieces of draft legislation and three accompanying explanatory materials (EMs).
Once again there is a very short window for providing feedback on the new draft materials, with submissions closing on 18 September 2026.
In this article we outline some of the key proposed changes.
We will be presenting on the changes at our webinar on 23 September 2026, to register click here.
Background
From 1 July 2028, the new 30% tax will apply to certain types of trusts and trust income referred to in the draft legislation as ‘minimum tax trusts’ (MTTs) and ‘minimum tax income’ respectively. Individuals and other non-corporate beneficiaries will receive non-refundable tax credits (NRT Credits) for the 30% tax payable by the trustee which will reduce their income tax payable.
The draft legislation and accompanying EMs confirm that trustees of MTTs will pay a 30% tax on the taxable income of the trust unless a higher rate applies.
Further, an MTT is a trust that is not any of the following:
- a fixed trust (subject to the changes to this definition outlined below);
- a special disability trust;
- the trust estate of a deceased person;
- a complying superannuation entity; and
- a trust of a kind determined in a legislative instrument.
Changes to the definition of fixed trust
The draft legislation amends the definition of a fixed trust in s 272-65 of Schedule 2F the Income Tax Assessment Act 1936 (Cth) (ITAA 1936).
The relevant EM provides:
Since the 2026-27 Budget announcement, some stakeholders have provided feedback that relying on the existing definition of fixed trust may result in the scope of discretionary trusts for minimum tax purposes being broader than intended.
Proposed s 272-65(1) provides that a trust is a fixed trust if:
(a) the trust’s beneficiaries have fixed entitlements to all of the income and capital of the trust; or
(b) there are no material discretionary elements affecting the entitlements or rights of the trust’s beneficiaries.
Further s 272-65(2) outlines a number of matters to consider as to whether there are material discretionary elements. This list is non-exhaustive and includes (in broad terms):
- The beneficiaries have clearly defined specific and enforceable entitlements or rights to all of the income and capital of the trust or in relation to the governance of the trust.
- Powers under the trust cannot be exercised to significantly vary existing entitlements or rights, or to significantly affect the value of the interests of existing beneficiaries of the trust.
- Variation powers can only be exercised with the consent of all beneficiaries or otherwise in a way that does not adversely affect the entitlements or rights of beneficiaries.
Although these changes are intended to provide a wider scope for a trust to meet the definition of a fixed trust, many existing unit trusts that purport to be fixed may still not meet this definition. Clients who intend to use existing unit trusts should consider whether any variations are required to their deeds to ensure that they are not subject to the new tax.
Further, when establishing new unit trust structures, clients and their advisers should be mindful to ensure that the trust will be fixed.
A new election regime
Overview
The draft legislation proposes to insert new Division 6F in the ITAA 1936, which contains a new election regime that allows a MTT to be an ‘excluded election trust’ (EET) and thus not subject to the new tax. The relevant EM explains that trustees of DTs that exist on 1 July 2028 can make an election to be an EET for the 2028-29 income year and all future income years until the election is revoked. The election must be lodged prior to the earlier of the due date of lodging the trust’s
2028–29 tax return or the actual date of lodging the return for that year.
Election and Nomination
The election must be in the approved form and contain a nomination that provides:
- each beneficiary it intends to make presently entitled to a share of the income and capital of the trust in each year of income; and
- the relevant share of income and capital for each beneficiary specified, which must, in total, equal 100 per cent of the income and capital of the trust;
For each income year, the trustee of the DT must make the nominated beneficiaries presently entitled to the share of income and capital as set out in the nomination. Where this does not occur in a particular income year:
- the election is automatically revoked;
- presently entitled beneficiaries for that income year are treated as not being presently entitled and are not liable to pay income tax in respect of their share of the income and capital;
- the trustee is assessed and liable to pay tax in respect of all of the net income of the trust in that income year; and
- in future income years, the trust will be subject to the minimum tax.
Variation and revocation
The election can only be varied to include new beneficiaries when a nominated beneficiary dies or if there is a relationship breakdown between two nominated beneficiaries. However, trustees can also choose to revoke the election for a future income year. Once revoked, an election cannot be made again. Further, making an election will also prohibit a trust from accessing roll-over relief under new proposed subdivision 126C of the Income Tax (Transitional Provisions) Act 1997 (Cth).
Nominated beneficiaries
Nominated beneficiaries must be eligible beneficiaries under the relevant trust deed. The following cannot be nominated as beneficiaries for the purposes of the election:
- complying superannuation funds (including SMSFs);
- partnerships as defined in s 995-1(1) of the Income Tax Assessment Act 1997 (Cth); or
- companies other than an ‘eligible company’.
A company will be an eligible company for the purposes of an EET election if there are no material discretionary elements affecting the rights or interests of shareholders, similar to the factors and considerations outlined above under fixed trusts.
Interestingly, the proposed changes may preserve the use of corporate beneficiaries where a DT elects to become an EET. However, where no election is made, a corporate beneficiary is not eligible for a NRT credit, meaning that distributions to a corporate beneficiary are subject to a significantly higher rate of tax, as both the trustee of the DT and the corporate beneficiary are effectively taxed on the distribution.
Clients and their advisers should ensure that the constitutions of any existing corporate beneficiaries are carefully reviewed for discretionary elements if they intend for that beneficiary to be an ‘eligible company’. Many existing constitutions will need to be varied as they will not satisfy the proposed criteria.
Similarly, new corporate beneficiaries:
- should be incorporated prior to 1 July 2028;
- should be eligible beneficiaries under the relevant trust deed; and
- should not have discretionary elements (ie, the company should also only one class of ordinary shares).
Franking credits
The EM provides that trustees of MTTs that receive franked dividends will be required to use franking credits when paying the minimum tax and states:
This approach ensures that any trustee that is subject to the minimum tax does not allow their franked distribution to ‘flow-through’ to the beneficiaries. Instead, the trustee will be the recipient of a franked distribution. The franking credit on the distribution will be included in the trustee’s assessable income, for the purposes of the minimum tax and net income under section 95, and the trustee will be entitled to a tax offset equal to the value of the franking credit that must be used when calculating the minimum tax. As the trustee will be liable to pay the minimum tax, they will also be able to use relevant tax offsets (in this case, franking credits) to reduce the tax liability.
Excess franking credits in respect of an MTT are refundable to the trustee. The EM also provides an example of how franking credits will operate under the new regime:
A minimum tax trust receives a fully franked dividend of $70, attached to it is a $30 franking credit.
The trustee includes $100 in its assessable income and is liable for minimum tax of $30.
The trustee uses the $30 franking credit tax offset to reduce that liability to nil.
As the trustee is liable for the minimum tax, the franking credit is used by the trustee and is not available to beneficiaries. Instead, a non-corporate beneficiary can claim a $30 non-refundable offset against its income tax liability.
Broadly, the current treatment of franked distributions and franking credits will continue to apply to EETs.
Thus, there are numerous differences between choosing to become an EET or remaining a MTT.
Conclusions
The proposed changes are still in draft form, however, there is still considerable uncertainty in what the final form of the legislation will be and how the regime will be interpreted and applied by the ATO.
Naturally, DBA Lawyers will be closely monitoring these changes and is pleased to assist. We offer a range of services including deeds of variation to trusts, tax advice and restructuring options.
Related articles
- Draft legislation on the taxation of discretionary trusts on 23 September 2026 – WEBINAR
- Proposed changes to the taxation of discretionary trusts from 1 July 2028
- Why should you order trusts from DBA Lawyers?
- NALI & NALE Part 2 — Dividend, fixed trust and non-fixed trust – NALI
- Family trust elections – one choice, lasting consequences – Part 1
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By Daniel Butler, Director ([email protected]) and Fraser Stead, Lawyer, ([email protected]).
Note: DBA Lawyers presents regular SMSF Online Updates. For more details or to register, visit www.dbanetwork.com.au or call 03 9092 9400.
For more information regarding how DBA Lawyers can assist in your SMSF practice, visit
This article is for general information only and should not be relied upon without first seeking advice from an appropriately qualified professional.
9 September 2026
