Trust tax proposal goes beyond income-splitting objective, The Tax Institute warns
SYDNEY, 31 July 2026: The Tax Institute warns that the Government’s proposed 30% minimum tax on discretionary trusts could impose significant costs on family businesses, small businesses and some farmers, while creating outcomes that exceed the policy objective of the reform.
Discretionary trusts are widely used by family businesses, farmers and professional practices for asset protection, succession planning and intergenerational business ownership, not simply income splitting.
“While we recognise the Government's objective of reducing inappropriate income splitting through discretionary trusts and welcome Treasury's efforts to develop exclusions and transitional measures, including the proposed rollover relief, significant concerns remain regarding the design of the proposal,” says Tax Counsel John Storey.
“Given the scale and complexity of the proposed reforms, their potential to affect well over one million trust structures, their significant implications for small businesses, family groups, primary producers and investors, and the fact that these measures are not intended to come into effect until 1 July 2028, additional consultation appears necessary before the reforms are finalised and before legislation is drafted.” says Mr Storey.
Key concerns with the proposal include:
- The scope of the discretionary trust definition: The proposed reliance on the schedule 2F fixed trust rules risks capturing a broader range of trusts than intended, including commercial, investment and employee equity structures that do not present a genuine income-splitting concern.
- The treatment of corporate beneficiaries: Under the current design, trust income distributed through corporate beneficiaries could face effective tax rates substantially above 30%, and in some circumstances materially higher than Australia’s top marginal individual tax rate.
- The significant cost and complexity of restructuring: Businesses and families may need to review long standing structures and restructure away from discretionary trusts. Member estimates suggest legal restructuring costs alone could range from approximately $4 billion to $13.3 billion nationally, with ASIC company registration fees potentially exceeding $560 million. Businesses may also face significant State and Territory transfer duty costs, as the proposed Commonwealth rollover relief does not extend to State and Territory duty laws.
- The impact of farming structures: The treatment of common rural ownership arrangements remains unclear, particularly where farmland is owned by one entity and operated through another related entity.
- The cumulative compliance burden imposed alongside a range of concurrent tax and regulatory reforms: The proposed minimum tax does not operate in isolation. Businesses are already navigating a range of significant tax and regulatory reforms, including the budget changes on capital gains tax (CGT) and negative gearing, foreign resident CGT changes, Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) reforms, increased ATO compliance activity and proposed Division 7A changes following the High Court's decision in Bendel. Businesses considering whether to restructure existing trust arrangements will need to assess the combined impact of these measures, together with potential State and Territory duty consequences.
"While we support the Government's policy objective, our submission outlines a number of alternative approaches that may achieve that objective in a simpler, more targeted and less disruptive manner. We encourage Treasury to give genuine consideration to these alternatives before the design of the measure is finalised," says Mr Storey.
The Tax Institute is the leading forum for the tax community in Australia. We are committed to shaping the future of the tax profession and the continuous improvement of the tax system for the benefit of all. In this regard, The Tax Institute seeks to influence tax and revenue policy at the highest level with a view to achieving a better Australian tax system for all.
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