Australia: Federal Government Introduces Minimum Tax on Discretionary Trusts

• Australia's federal government has introduced new legislation to implement a minimum tax on discretionary trusts.
• The Treasury Laws Amendment (Tax Reform No. 3) Bill 2026 and the Income Tax Rates Amendment (Minimum Tax on Discretionary Trusts) Bill 2026 were introduced by Treasurer Dr. Jim Chalmers.
• The new minimum tax will take effect on 1 July 2028, with exemptions for fixed, charitable, special disability, and superannuation trusts.
• Discretionary trust users can access rollover relief for restructuring or elect for an exemption by nominating beneficiaries upfront.
• This reform is part of a broader Australian trust tax reform effort, with ongoing stakeholder consultation planned.

This legislative action forms part of a broader Australian trust tax reform effort designed to ensure a fairer and more equitable tax system across the nation.

Australia's federal government has initiated a significant shift in its tax policy concerning discretionary trusts, with Treasurer Dr. Jim Chalmers introducing two pivotal pieces of legislation. These are the Treasury Laws Amendment (Tax Reform No. 3) Bill 2026 and the Income Tax Rates Amendment (Minimum Tax on Discretionary Trusts) Bill 2026. The primary objective behind these bills is to implement a minimum tax on discretionary trusts, aiming to address perceived inequities in how some Australians manage their tax obligations.

Dr. Chalmers acknowledged that discretionary trusts serve legitimate purposes for many individuals and entities. However, he highlighted concerns that certain trust arrangements enable tax planning strategies that are not accessible to the majority of the population. This legislative action forms part of a broader Australian trust tax reform effort designed to ensure a fairer and more equitable tax system across the nation. The government's intent is to close loopholes that allow a select few to structure their financial affairs in ways that provide disproportionate tax advantages.

The proposed minimum tax on discretionary trusts is slated to commence on 1 July 2028. However, the legislation includes several crucial exemptions to ensure that certain types of trusts are not adversely affected. Specifically, fixed trusts, charitable trusts, special disability trusts, and superannuation funds will be exempt from this new minimum tax. This targeted approach aims to focus the reform on discretionary trusts used for specific tax planning purposes, rather than broader trust structures with distinct social or financial functions.

For small businesses and other users of discretionary trusts, the legislation provides mechanisms to navigate the new tax environment. They will have the option to access discretionary trust rollover relief, allowing for restructuring without immediate tax consequences. Alternatively, they can make an election for tax purposes to qualify for a minimum tax exemption. This election permits trusts to continue making distributions to pre-nominated beneficiaries, provided an upfront nomination is in place. Treasurer Chalmers emphasized that this election would not necessitate a complete restructure of the trust, nor would it restrict its inherent discretionary powers. Furthermore, this particular pathway is not anticipated to trigger state and territory stamp duties, offering a streamlined compliance option for many.

The introduction of the minimum tax on discretionary trusts is presented by the government as a component of its wider tax reform agenda. Treasurer Chalmers pointed to previous legislative successes, including tax cuts for 13 million workers, initiatives to improve housing market accessibility for Australians, and the delivery of $3.8 billion in reduced taxes for businesses and startups. These measures collectively underscore the government's commitment to a comprehensive overhaul of the national tax landscape, with the new trust tax rules contributing to the goal of a more balanced system.

The government has also stressed the importance of stakeholder engagement throughout this reform process. Dr. Chalmers publicly thanked those who provided input during the initial consultation phases that informed the current legislative proposals. He affirmed the government's intention to continue consulting with stakeholders on subsequent tranches of legislation and related instruments as the full tax reform package is finalized. This ongoing dialogue is crucial for refining the implementation of the 1 July 2028 discretionary trust tax and ensuring its effectiveness while minimizing unintended consequences for legitimate trust users.

Lawyers and compliance officers must advise clients with discretionary trusts on the implications of the newly introduced minimum tax, assess eligibility for exemptions and rollover relief, and consider restructuring options or elections before the 1 July 2027 effective date to ensure compliance and mitigate tax exposure.

Source: Original reporting via government media release