The Tax Institute welcomes the opportunity to make a submission to the Senate Economics Legislation Committee (Committee) in respect of its inquiry and report on the Treasury Laws Amendment (Tax Reform No. 3) Bill 2026 (Bill) and accompanying explanatory memorandum (EM).
This submission builds on our submission to Treasury dated 31 July 2026 on the consultation paper (July 2026 submission) and our submission to Treasury dated 18 September 2026 on the exposure draft legislation (September 2026 submission). It also builds on our submission to Treasury dated 21 August 2026 on the exposure draft legislation for Tranche 2 of the CGT and negative gearing reforms (August 2026 submission). It focuses mainly on Schedules 1 to 3 of the Bill, which introduce the minimum tax on discretionary trusts, the associated roll-over relief and the electable regime. It also raises issues with the CGT and negative gearing amendments in Schedules 4 and 5, and the transitional relief for excess concessional contributions in Schedule 6.
The Tax Institute supports the Government's objective of improving the fairness of the tax system. We acknowledge that the Bill reflects some of the feedback provided during consultation. In particular, we welcome:
- the new discretion for the Commissioner to disregard an automatic revocation of an excluded election trust (EET) election where revocation would be unreasonable (proposed section 102UYH of the Income Tax Assessment Act 1936 (Cth) (ITAA 1936));
- the statement in the EM that an EET election and nomination do not, of themselves, require a resettlement of trust property (EM paragraph 3.23), although this does not bind state and territory revenue authorities for duty purposes;
- the retention of the exclusion for distributions to registered charities and deductible gift recipients (proposed paragraph 101AE(1)(d));
- the principles-based fixed trust definition (proposed section 272-65 of Schedule 2F to the ITAA 1936);
- the continuation of the active asset and 15-year periods for assets transferred under the roll-over (proposed section 126-980 of the ITTP Act; EM paragraphs 2.106 and 2.107);
- the new exclusions for employee share trusts, approved worker entitlement funds, and certain special purpose entities (proposed paragraphs 101AB(1)(e) to (g));
- the new exclusions from minimum tax income for certain non-assessable non-exempt income and related franking credits (proposed paragraphs 101AE(1)(g) to (i)); and
- the confirmation that transfers under the roll-over will not give rise to family trust distribution tax (FTDT) (proposed section 126-950 of the Income Tax (Transitional Provisions) Act 1997 (Cth)) (ITTP Act).
However, many of the significant policy, technical and practical issues we raised in our earlier submissions to Treasury remain unresolved. Some changes made since the exposure draft also broaden the regime and have not been the subject of consultation.
Our overall position is that Schedules 1 to 3 should not be passed until all of the deferred rules, regulations and legislative instruments on which they depend have been released for consultation and, in any event, should be passed only with the amendments we recommend (Recommendation 2).
Consultation timing
The consultation period for the exposure draft legislation was 12 business days. The Bill was introduced on 14 October 2026, less than a month after that consultation closed on 18 September 2026. The Bill was referred to the Committee on 15 October 2026. Submissions close on 29 October 2026, 10 business days later, and the Committee is due to report on 13 November 2026. These measures are among the most significant changes to the taxation of trusts in decades. In our view, this timeframe does not allow adequate scrutiny of a Bill of this size and complexity.
The administrative, reporting, notification, collection rules and interaction issues are yet to be released (EM paragraphs 1.17 and 1.100). The Committee is therefore being asked to consider only part of the regime.
The Government's approach of progressing these reforms in multiple tranches has also made it harder to keep track of which measures have passed, which are before Parliament, and which are yet to be introduced. Paragraph 4.179 of the EM states that Schedule 4 is the second tranche of the CGT reforms, and that further tranches will deal with, among other things, CGT roll-overs, foreign and temporary residents, tax consolidated groups, employee share schemes and demergers. This approach is indicative of a regime that is being frantically developed at the same time as it is being rushed through Parliament, and is not being given the proper consideration it merits.
In our view, this approach does not serve taxpayers, their advisers or the system. Taxpayers are being asked to make long-term decisions, including whether to restructure, while key parts of the rules remain unknown. Trustees may need to decide whether to restructure or make an election before they know the compliance obligations that will apply if they are subject to the minimum tax.
We recommend that the Committee require the Government to publish a timetable for the remaining tranches, and a consolidated summary of the status of each measure in the reform package (Recommendation 1).
Commencement and legislative instruments
Schedules 1 to 3 commence only when the Income Tax Rates Amendment (Minimum Tax on Discretionary Trusts) Act 2026 commences. However, the roll-over window opens on 1 July 2027. If the Bill is passed in the final sittings of 2026, trustees will have limited time to obtain advice, valuations and consents. The Bill, and the legislative instruments it relies on, need to be in place well before that date so that trustees can make informed decisions.
Several threshold questions are left to legislative instruments that have not yet been released. These include:
- the conditions for excluding distributions to registered charities and deductible gift recipients, and the cap for other exempt entities (proposed subsections 101AE(2) and (3) of the ITAA 1936);
- further kinds of trusts that are not minimum tax trusts (proposed subsection 101AB(2));
- matters for and against material discretionary elements under the new fixed trust definition (proposed subsection 272-65(5) of Schedule 2F to the ITAA 1936), the roll-over transferee test (proposed subsection 126-935(4) of the ITTP Act, and the eligible company test (proposed subsection 102UYD(4)); and
- the entire continuity test for roll-over relief for trusts that are not family trusts (proposed subsections 126-925(3) to (5) of the ITTP Act).
We recommend that the Committee request a timetable from the Government for these instruments. In our view, Schedules 1 to 3 should not be passed until all of the deferred rules, regulations and legislative instruments on which they depend, including drafts of these instruments and the deferred administrative, notification and collection rules, have been released for consultation. In any event, Schedules 1 to 3 should be passed only with the amendments we recommend in Appendix B (Recommendation 2).
If Schedules 1 to 3 are nonetheless passed before the instruments are made, the Bill should, at a minimum, provide that an instrument that operates adversely to taxpayers applies only to elections and choices made after the instrument is registered, and that the roll-over period and the EET election period are each extended if the relevant instruments are not registered well before those periods begin. This is crucial because the consequences of a later adverse instrument may be severe and irreversible. For example, an automatic revocation because a nominated company is no longer a company to which section 102UYD applies (proposed subparagraph 102UYG(2)(e)(iv)) is outside the Commissioner's discretion, which covers only paragraphs 102UYG(2)(b), (c) and (d) (proposed subsection 102UYH(1)). Similarly, an instrument made under proposed paragraph 126-935(4)(b) may cause a transferee to have material discretionary elements and so remove the roll-over under proposed subsection 126-905(5). This approach does not alter our position above (Recommendation 2).
We recommend that the ATO publish guidance and approved forms for the roll-over and the electable regime well before 1 July 2027 (Recommendation 3).
Compliance costs
The Impact Analysis at Attachment 1 to the EM estimates that the Government’s preferred option will impose one-off implementation costs of $939 million (within a range of $780 million to $1.1 billion) and ongoing costs of $48 million a year. The alternative option considered, which would extend the minimum tax offset to all beneficiaries, is estimated to involve lower one-off costs of $602 million but higher ongoing costs of $97 million a year. The higher ongoing cost of the alternative option reflects, in part, the absence of roll-over relief and an electable regime under that option. The Impact Analysis notes that, without them, many discretionary trusts may not be able to reduce their ongoing compliance costs because their structures would remain complex. Under the preferred option, most of the cost falls in the first years, when trusts must decide whether to restructure.
These estimates exclude state and territory duties, which are not treated as regulatory costs under the Regulatory Burden Measurement framework. The Impact Analysis itself notes stakeholder estimates that duty on a $1 million transfer could range from $36,590 to $55,000. The estimates also assume an average restructuring cost of around $11,000 for businesses and $2,000 for non-businesses. The business figure sits at the lower end of the ranges reported by other stakeholders ($9,536 to $23,436 and $15,000 to $50,000 per restructure). The non-business figure is well below them. Our July 2026 submission noted member estimates that legal restructuring costs alone could range from approximately $4 billion to $13.3 billion across the small business sector. In our view, the estimates are likely to materially understate the true cost of these measures to taxpayers.
We recommend that the Committee seek further information from the Government on how these estimates were calculated, and whether a simpler design with lower overall costs could achieve the same policy objective (Recommendation 4).
Post-implementation review
We recommend that the Government commit to a post-implementation review of the measures within 12 months of commencement to ensure that the changes operate as intended, and to address any later identified unintended consequences (Recommendation 5).
Our summary of key issues and recommendations is contained in Appendix A, and our detailed comments and recommendations are contained in Appendix B. This submission is divided according to the Bill's Schedules.