Australia's Treasury has released an exposure draft introducing a 30% minimum tax on discretionary trust income from 1 July 2028, closing a long-standing tax planning avenue. The reform allows eligible trusts to transition through either a non-discretionary election or a three-year rollover relief window ending 30 June 2030.
Australia’s Treasury released an exposure draft legislation, on 3 September 2026, proposing a legislative framework for the Income Tax Rates Amendment Bill 2026, which introduces a 30% minimum tax on the income of discretionary trusts starting in July 2028.
Originally announced in the 2026–27 Budget, the reform aims to align the taxation of trust distributions more closely with individual marginal income tax rates, limiting opportunities for trustees to reduce tax liabilities by allocating income to beneficiaries in lower tax brackets.
The core mechanism of the 30% minimum tax
The primary purpose of the tax is to limit the practice of using discretionary trusts to split income among multiple beneficiaries with lower marginal tax rates.
The proposed 30% minimum tax on discretionary trust income, applying from 1 July 2028, is designed to prevent income splitting through trusts to access lower individual tax rates. Where trust income is taxed below 30%, the trustee will pay a top-up tax to reach the 30% minimum.
Non-corporate beneficiaries will receive a 30% non-refundable tax offset to prevent double taxation, while corporate beneficiaries will be excluded to prevent the use of bucket companies for tax deferral. Franking credits must first be used against the trust’s minimum tax liability, with any excess refunded to the trustee.
Example: If a trust receives a fully franked dividend of AUD 70 (with an AUD 30 franking credit), the trustee includes AUD 100 in assessable income and incurs an AUD 30 minimum tax liability, which is reduced to nil using the franking credit. The non-corporate beneficiary then receives an AUD 30 non-refundable offset to use on their own return.
A redefined “fixed trust” for commercial certainty
The draft introduces a new principles-based definition of a “fixed trust” to avoid unintentionally capturing commercial trust structures under the discretionary minimum tax regime. Trusts will qualify where beneficiaries have fixed income and capital entitlements or where there are no material discretionary elements. Administrative discretions that do not materially alter existing beneficiaries’ rights will not prevent fixed-trust status, protecting MITs, AMITs, widely held trusts, bare trusts, and employee share trusts from the regime.
Exclusions & integrity safeguards
The draft narrows the scope of minimum tax income by excluding certain trusts, income types, and legitimate distributions.
Superannuation entities, special disability trusts, active deceased estates, primary production income, certain non-resident income, and income benefiting vulnerable minors are excluded.
Genuine testamentary trusts also receive exemptions, subject to anti-avoidance safeguards and restrictions on post-Budget property injections and corporate or trust beneficiaries. Charitable, DGR, and certain other tax-exempt entities are also excluded, with some exemptions subject to caps.
Transition and restructuring paths
The exposure draft proposes two alternative pathways to help trusts transition under the new tax framework, each covered under separate legislation.
Trusts in existence at 1 July 2028 can elect to make fixed distributions to pre-nominated beneficiaries, qualifying as a non-discretionary trust. This election allows them to bypass the 30% minimum tax entirely without requiring structural reorganisation.
For trusts that do restructure, transitional rollover relief will be available for three years beginning 1 July 2027. This provides a defined window for trusts to reorganise under the new regime.
The current exposure draft sets out the core rules of the new regime, with consultation closing on 18 September 2026.
