Minimum Tax on Discretionary Trusts:
Treasury Releases Consultation Paper

What is being proposed?

Under the proposal, the trustee of a discretionary trust would become liable for a 30% minimum tax on the trust’s taxable income, with non-corporate beneficiaries generally receiving a corresponding non-refundable tax offset.

While framed as a tax integrity measure, this represents a fundamental shift in the attractiveness of discretionary trusts as a long-term tax planning vehicle.
However, asset protection, succession planning, flexibility and estate planning remain key reasons many families and business owners choose trust structures. As a result, we do not expect discretionary trusts to disappear, but their relative tax appeal may be significantly reduced.

Who is excluded?

The paper confirms that the minimum tax is not intended to apply to:

• Fixed trusts
• Widely held trusts
• Special disability trusts
• Complying superannuation funds
• Charitable trusts
• Deceased estates
• Certain testamentary trusts
• Primary production income
• Certain distributions to vulnerable minors
• Certain foreign resident withholding tax income streams such as dividends, interest and royalties.

The exclusion for genuine testamentary trusts is particularly important, given the role these structures play in succession planning and asset protection strategies following death.

Defining a discretionary trust

Treasury acknowledges there may be difficulties in defining exactly which trusts should be caught, and this is an area that could require refinement before legislation is introduced.

A discretionary trust is effectively defined by exclusion as a trust that is not a fixed trust. Treasury has specifically requested feedback on whether this approach could inadvertently bring various commercial trusts into the regime.

Many modern trust deeds contain amendment powers, appointor powers and trustee discretions that may technically prevent beneficiaries from holding strictly vested and indefeasible interests. If the definition is drafted too broadly, there is a risk that commercial trusts and investment structures could be captured in a way that was never intended.

Major restructure relief proposed

The Government is proposing a three-year rollover relief period from 1 July 2027 which would effectively expand the current Small Business Restructure Rollover relief to:

• Apply to passive investment assets
• Remove the current genuine restructure requirement
• Facilitate transfers to companies, fixed trusts and other eligible structures
• Prevent Family Trust Distribution Tax arising in certain circumstances.

Many family groups hold substantial unrealised capital gains within discretionary trusts. Without some form of rollover relief, restructuring would be commercially impractical.

There are still a lot of unanswered questions around state taxes, duty outcomes, financing arrangements, and the practical treatment of complex family structures.  Clients should not assume that converting to a company will automatically be the best solution, particularly given the proposal suggests that companies participating in the restructure may be restricted to a single class of shares, limiting flexibility.

Corporate beneficiaries under pressure

The paper confirms that companies receiving trust distributions will not receive the proposed minimum tax offset, effectively eliminating the effectiveness of traditional corporate beneficiary arrangements.

Combined with the Government’s reconsideration of the announced-but-unenacted Division 7A measures from the 2019 Budget and the High Court’s Bendel decision, it is becoming increasingly clear that family group structures involving trusts and corporate beneficiaries will be under greater scrutiny.

Franking credits remain unresolved

The consultation paper specifically seeks feedback on how excess franking credits should be treated. Treasury is considering two alternativ <>e approaches:

1. Refunding excess franking credits to trustees.
2. Allowing excess franking credits to be carried forward and applied against future trustee liabilities.

Neither option is ideal, but any carry-forward model would require extensive integrity rules, creating significant tracking, compliance and administrative complexity.

Collection mechanisms may create new risks for trustees

Perhaps the most under-appreciated aspect of the consultation paper is the proposed collection framework.

Treasury is considering:

• Enhanced recovery rights against trust assets;
• Director liability for corporate trustees;
• PAYG style collection mechanisms; and
• Additional trustee reporting and notification obligations.

These measures could significantly increase risk for directors acting as corporate trustees.

Historically, many trustee companies have held few assets in their own right. If director liability style provisions are ultimately adopted, we may see trustees needing to take a far more active role in cash flow planning and tax provisioning than is currently the case.

Where to from here?

This is just a consultation paper and not yet law. Submissions close on 31 July 2026, leaving only a short consultation window.

It is not yet clear how many existing structures will ultimately need to change. For some family groups, restructuring to a company or fixed trust may become attractive. For others, the flexibility, commercial and succession planning advantages of a discretionary trust may continue to outweigh the tax cost.

What is clear is that trust structures are once again at the centre of the tax policy debate, and business owners should begin considering how these changes could affect their long-term structure and succession plans.

Date: 10/07/2026

The Macro Group Limited AFSL:485843 Tax Agent Number 24 76 5236.

The information in this article contains general information only. We have not taken into consideration any of your personal objectives, financial situation or needs. Before taking any action, you should consider whether the general advice contained in this communication is appropriate to you having regard to your circumstances and needs and seek appropriate professional advice if you think you need it. We recommend that you consult a licensed or authorised financial adviser if you require financial advice that takes into account your personal circumstances.