Sydney, 15 October 2026: The highly anticipated Treasury Laws Amendment (Tax Reform No. 3) Bill 2026 (the Bill) was introduced into Parliament this week. The Bill contains the minimum tax on discretionary trusts and the second tranche of capital gains tax (CGT) changes. It also makes further changes to the negative gearing rules already enacted through the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 and the Treasury Laws Amendment (Tax Reform No. 2) Act 2026, and provides transitional relief for excess contributions for Payday Super.

The Tax Institute welcomes a number of changes in the Bill that respond to concerns raised in our submissions dated 18 September 2026 and 21 August 2026. However, significant issues remain unresolved, and some changes made since the exposure draft will make the regime harder for families and businesses to manage.

Minimum tax on discretionary trusts: what has improved

We welcome the new discretion for the Commissioner to stop an excluded election trust election from being revoked because of an honest mistake, such as a rounding error in a distribution.

“The Government has accepted our feedback regarding honest mistakes, and we welcome that. An inadvertent slip should not permanently lock a family out of the regime,” says Julie Abdalla, Head of Tax & Legal at The Tax Institute.

We are also pleased to see an expanded list of exclusions, now covering employee share trusts, approved worker entitlement funds and certain securitisation vehicles. A broader definition of fixed trust means that more commercial trusts are likely to qualify as fixed trusts and therefore fall outside the proposed minimum tax regime. In addition, excluding certain non-assessable non-exempt income, associated franking credits and conduit foreign income from minimum tax income helps reduce the risk of double taxation for foreign residents.

What still needs to be fixed

Companies that receive trust income still cannot claim any credit for the 30 per cent tax paid by the trustee. On the worked examples in our submission, combined tax reaches 60 per cent at company level, and up to 77 per cent once that income is paid out as a dividend to a shareholder on the top marginal rate.

“A 30 per cent minimum tax should mean 30 per cent. However, family businesses that use a company beneficiary will bear the brunt of a tax liability well above that,” Abdalla says.

Restructuring remains difficult. Roll-over relief is still limited to a single new entity, all assets must move, and trusts that are not family trusts depend on a Ministerial determination to access it. The roll-over only provides income tax relief, leaving stamp duty to the states and territories.

On stamp duty, the NSW and Western Australian Governments have committed that trusts choosing to become an excluded election trust will not pay stamp duty on that choice. In NSW, this currently depends on the Government being re-elected and will follow consultation once the Bill passes. We welcome these commitments. However, they cover only the election. There is still no clarity on the stamp duty consequences for trusts that restructure, and Queensland has declined to provide similar relief. We urge all states and territories to confirm the duty treatment of both pathways before trustees have to decide.

“Families and small businesses need certainty on stamp duty to make informed decisions about their structures. There is no cost-free option here. Taxpayers will need to seek professional advice on their personal circumstances to determine whether to leave their arrangements as they are, make an election, or restructure out of a trust,” says Abdalla.

“While NSW and Western Australia’s governments have shown good leadership, it is an unfair burden on the states to simply forgo revenue. The CGT and negative gearing changes will also have flow-on effects for state revenues, at a time when states are already under pressure to fund increasingly costly public services. A coordinated, national approach, with the Commonwealth sharing the cost, would be fairer to the states and taxpayers,” Abdalla says.

The election to stay outside the regime can still only be made once, in the first year, while the rules on administration, reporting, collection and international issues are still to come in future legislation. Family trust distribution tax is unchanged apart from protecting roll-over transfers, and the new discretion for honest mistakes does not extend to it.

“Trustees are being asked to make decisions that will bind them for decades without visibility of the full rules. It is an opportune time for the same fairness shown on honest mistakes to now apply to family trust distribution tax,” Abdalla says.

Some changes since the exposure draft also widen the regime. A trust is now a minimum tax trust if it is one at any time during the year, not only at year end, which catches trusts that change status during the year. For testamentary trusts established on or after 1 July 2028, the stricter test based on the trust instrument may also require wills and trust deeds to be updated.

Other measures in the Bill

CGT: The Bill contains the second tranche of the CGT reforms, which clarifies how the new rules apply to more complex arrangements, including trusts and superannuation funds. We welcome refinements made since the exposure draft, such as extending the list of CGT exemptions that also switch off a deferred gain from the 1 July 2027 deemed sale. However, our submission called for a de minimis threshold so the 30 per cent minimum tax on capital gains does not fall hardest on small-scale and first-time investors, and for an apportionment method that works for assets such as private company shares and goodwill. Disappointingly, neither has been adopted. “These are significant, economy-wide changes, and it is positive that the Government continues to refine them. However, successive rounds of correction are no substitute for getting the design right through proper consultation,” Abdalla says.

Negative gearing: We welcome the additional exemptions for retirement villages and residential care homes, and the clearer rules on what counts as a new residential dwelling, including a dwelling built to replace a derelict building. However, we are concerned that there have been several amendments and a piecemeal approach to these provisions that could have been mitigated through fulsome consultation. The rules remain complex, and investors will need guidance to apply them with confidence.

Payday Super: We welcome relief for employees who would otherwise exceed their concessional contributions cap in 2026–27 only because of the move to Payday Super. This relief applies to the current income year, and we urge Parliament to pass this measure promptly so affected employees have certainty.

Consultation on the exposure draft of the trusts package ran for just 12 business days. “If the Government sincerely wants to make our tax system fairer, introducing a Bill with such significant complexity without allowing for sufficient consultation will likely add to the compliance burden felt by taxpayers and their advisers, rather than reduce it. We urge Parliament to address these issues before the Bill passes,” Abdalla says.

The Tax Institute will continue to work constructively with the Government on the Bill, and urges it to implement any reforms fairly, and with clear guidance for taxpayers and their advisers.

ENDS