Tax Flash – October 2026
Tax Flash
October 2026
30% MINIMUM TAX FOR TRUSTS – FINAL LEGISLATION RELEASED
As was further highlighted in last month’s Tax Flash, the May 2026 Federal Budget announced sweeping changes to the tax landscape for SME’s and private groups, including the proposed 30% minimum tax for discretionary trusts that is proposed to commence from 1 July 2028 (2029 financial year).
On 3 September 2026, the Government released draft legislation and explanatory materials for the proposed 30% minimum tax on discretionary trusts (MTT) and gave advisers and the community until 18 September 2026 to make submissions in regard the draft legislation.
Whilst many bemoaned the extremely short timeframe for submissions, we understand that a considerable number of submissions were lodged and certainly from those that were made public, mostly proposed changes or revisions to the draft legislation.
In what must be record time, the Government yesterday released the final legislation introducing the MTT and in perhaps of little surprise, no material changes appear to have been made to the draft.
The Key Points of the legislation that will now be put to Parliament remain:
- Fixed Trusts are excluded from the MTT
The legislation provided a new definition of what is a fixed trust for the purposes of the exclusion. Again, that detail is lacking in that it merely draws on existing ATO guidance on what is a fixed trust (PCG 2016/16) wherein a trust is a fixed trust if:
- the trust’s beneficiaries have fixed entitlements to all of the income and capital of the trust; or
- there are no material discretionary elements significantly affecting the entitlements or rights of the trust’s beneficiaries.
This definition still leaves too much uncertainty and room for interpretation in our view and will no doubt require the review and possible variation of many Unit Trust deeds to determine whether they can meet the fixed trust exclusion. Indeed, the EM states that taxpayers can apply to the ATO for a private ruling to obtain certainty.
- Income excluded from the MTT
The minimum tax will not apply to primary production income, certain income relating to vulnerable minors and amounts already subject to non-resident withholding tax.
Income derived by a “genuine” testamentary trust, as well as income to which the trustee is assessed under section 99A is also excluded.
- Tax Offset for beneficiaries
The trustee will be liable to pay the minimum tax, with beneficiaries including their full share of the trust’s taxable income in their tax return. Beneficiaries, with the exception of corporate beneficiaries, will be able to claim a non-refundable credit for the minimum tax paid by the trustee. Trustees that receive franked dividends will be required to use franking credits when paying the minimum tax as an offset against the minimum tax on the grossed up franked dividend.
Unfortunately, even after some intense lobbying and many submissions seeking the removal of or changes to this measure, the Government has not sought to directly address the punitive double taxation of corporate beneficiaries by allowing a refundable tax credit.
This locks in that using corporate beneficiaries will be dead from 1 July 2028 unless a 60%+ overall tax rate appeals to a trustee!
So what are the legislative solutions?
- The Excluded Election Trust
The Excluded Election Trust (EET) was designed to enable existing trusts to remain as they are and not be subject to the 30% Minimum Tax.
The stated intention is to enable the trust to avoid restructure costs, including state duties and the disruption of moving assets or a business from the trust to another entity.
It would also enable the trust to distribute to a corporate beneficiary without being subject to the double taxation of trust AND corporate tax without offset.
Whilst there still appears to be significant argument on whether state duties will be avoided, the key condition is a fixing of future income and capital distributions from the trust based on the beneficiaries of the trust that are in place as of 1 July 2028.
Our example from last month bears repeating;
As at 1 July 2028 the beneficiaries of the Trust include Mum, Dad, 1 adult child and one child under 18 and a corporate beneficiary.
The Trust makes an election to distribute 25% of income and capital to Mum, Dad and the Adult child, with the remaining 25% to the corporate beneficiary.
This sets in stone this distribution pattern from 30 June 2029 until the death (or divorce) of one of the adult beneficiaries. Any changes to the distribution pattern will trigger a revocation of the election (forever) and the trustee will be taxed on that year’s net income at 47%. The 30% minimum tax will then kick in from the following year.
As a result, you can never add the other child as a beneficiary when they reach 18, grandchildren cannot be included in future years, the same 25% of capital must be distributed to the corporate beneficiary, trapping that in the corporate structure and the trustee is unable to exercise any discretion where one of the nominated beneficiaries is in greater or lesser need or risk in a particular year.
Many trust lawyers are of the view that making this election fetters a trustee’s discretion thereby putting the trustee in breach of their fiduciary duties under the Trust Deed. Amendments will no doubt be required to Trust Deeds to enable a trustee to make such an election.
- Tax Rollover out of a Trust
Finally, if the Trust is not excluded and does not want to make the election to be an EET, an expanded rollover relief will be available from 1 July 2027 to assist small business “and others” that wish to restructure their affairs out of discretionary trusts and into other ownership structures.
The rollover relief will be available for 3 years from 1 July 2027 and will provide relief from income tax and capital gains tax consequences. Importantly, this rollover requires ALL trust assets to be disposed of over a 3-year period from 1 July 2027 to 1 July 2030, with written notifications required to be made to the ATO.
A four-year clawback of the rollover is also provided for where the transferee has material discretionary rights or interests that, in the ATO’s view, change the continuity of ownership of the underlying assets. Think Class or Alphabet shares on issue from a company.
As has been widely discussed, state duties will still apply where the rollover is chosen and in WA, the transfer duty cost will continue to be punitive for those trustees that choose to use this rollover to move assets out of trusts. The NSW Government announced a duty rollover today, however it appears to only apply where the EET is made and not where the rollover is chosen to move dutiable assets. The WA Government is rumoured to be following suit.
With a 1 July 2028 start date, whilst we need to start thinking of our clients’ current structures and the likely impact of these new rules, at Maroo Advisory we still recommend a HOLD on implementing any changes until the legislation, in its final form, is passed. Given the pace of this process so far, that may not be too long!
If you would like to discuss any of these proposed Trust Changes please contact one of our Advisors.
A special exemption from these new rules applies for “new builds” of residential properties that “genuinely add to supply”. This includes dwellings constructed on vacant land, or where existing properties are demolished and replaced with a greater number of dwellings.
These properties will remain able to access the 50% CGT Discount, or to choose CPI indexation, whichever is best.
Whilst we had hoped for more time and consultation to occur before the changes were legislated, the Government was able to find support with one of the minor parties to essentially pass the key parts of their proposed changes, with a few minor amendments.
The full extend of these proposed changes will take some time to fully understand and apply to our private client groups, including whether that requires a restructure of current asset holdings or more likely, consideration of which entity acquires new assets.
One thing that has definitely become clearer is that acquiring appreciating capital assets within companies from 1 July 2027 (and potentially earlier) is a serious consideration given the removal of the 50% CGT discount AND the 30% minimum tax on capital gains.
Our recommendation is to hold fire on any potential restructuring of existing asset holdings, but to seek advice on new asset purchases to ensure that what is legislated to apply from 1 July 2027 is fully considered before the asset is acquired.
If you would like to discuss any of these proposed CGT changes, please contact your Maroo Advisory adviser.
ATO CREDIT CARD PAYMENTS EXTENDED TO 30 JUNE 2027 – AN OPPORTUNITY TO EARN REWARD POINTS
The Australian Taxation Office (ATO) has announced that it will continue accepting credit card payments for tax obligations until 30 June 2027, following an extension of its previously announced changes.
With the removal of credit card surcharge fees, this appears to be a particularly attractive option for taxpayers wishing to earn frequent flyer or other reward points when paying their tax liabilities.
A few things to consider:
- Reward points: Check with your credit card provider whether ATO payments qualify for reward points, as some cards exclude government transactions or offer reduced earning rates.
- Company credit cards: Where a director earns reward points through a company credit card and uses them for personal purposes, such as holiday flights, this will generally not attract Fringe Benefits Tax (FBT) under ordinary personal loyalty arrangements. However, different tax implications may arise where points belong to the company, are provided as part of remuneration or form part of a specific corporate rewards arrangement.
- Credit card interest: Ensure your credit card balance is paid within the interest-free period to avoid unnecessary interest charges.
What happens after 30 June 2027?
The ATO has advised that taxpayers wishing to continue paying by credit card after this date may need to use third-party payment providers, which may charge additional processing fees.
For now, the extension provides an opportunity to consider whether paying your tax obligations by credit card could be beneficial.
If you would like to discuss any of these proposed changes, please contact your Maroo Advisory adviser.
