On 3 September 2026, Federal Treasury published exposure draft legislation to implement the 30 per cent minimum tax on certain discretionary trusts, a measure which was announced in the 2026-27 Federal Budget and will apply from 1 July 2028.
The exposure draft legislation adopts some but by no means all of the stakeholder feedback provided to Treasury in response to its initial consultation paper released for consultation on 8 July (submissions in respect of which closed 23 days later on 31 July 2026). You can read our insight on the minimum tax on discretionary trusts as it was initially proposed here.
The exposure draft touches on a number of key areas including:
- how the minimum tax will work
- excluded types of trusts and income
- the definition of fixed trust (which are excluded from the provisions)
- how income tax-exempt entities will be treated
- roll-over relief
- a new electable regime for exclusion from the minimum tax; and
- the treatment of excess franking credits.
A key object of the original proposal was to penalise the use of corporate beneficiaries (‘bucket companies’). Consistent with the initial announcement, under the exposure drafts corporate beneficiaries cannot claim a non-refundable tax-offset for minimum tax paid by a discretionary trust, effectively imposing double-taxation on the ‘bucket company’ structure.
However, importantly the draft legislation proposes a new excluded election trust (EET) election which may provide some relief for discretionary trusts where the trustee nominates the beneficiaries to whom it may confer present entitlement and their fixed shares of the trust’s income and capital, which can include corporate beneficiaries. The EET election was not previously contemplated as part of the initial consultation paper or the 2026-27 Federal Budget materials.
Consultation on the exposure drafts is open until 18 September and submissions may be made here.
What has changed from the consultation paper?
The draft exposure legislation is broadly consistent with the consultation paper and 2026-27 Federal Budget materials.
Treasury has, however, adopted some suggestions put to it by way of submissions. This includes creating a new definition of minimum tax trust which excludes any of the following:
- a fixed trust;
- a special disability trust;
- the trust estate of a deceased person;
- a complying superannuation entity;
- a trust of a kind determined in a legislative instrument.
The revised definition of ‘fixed trust’ expands the exclusory scope of ‘fixed trusts’ to include trusts which have the power to vary entitlements or rights where those powers cannot be exercised to significantly vary existing entitlements or rights, or to significantly affect the value of the interests of existing beneficiaries of the trust. This is broader than the previous definition, which provided that a trust was only ‘fixed’ if, broadly speaking, beneficiaries had vested and indefeasible interests in all of the income and capital of the trust.
It is, however, unlikely to provide certainty to trustees of managed investment trusts (MITs) many of whom had hoped for deemed fixed trust treatment. For MITs and other trusts, there also remains provisions which allow the Minister to designate matters which suggest that there are ‘material discretionary elements’.
The delegated legislative power is a persistent feature of the minimum tax exposure drafts and will be familiar to those who have considered the capital gains tax (CGT) reform.
The draft exposure legislation also adopts submissions which were made in support of:
- refundability for excess franking credits held by a discretionary trust after application against the minimum tax (that is, trustees will be able to obtain refunds for franking credits that remain and relate to income subject to the minimum tax);
- excluding certain primary production assets from the all-assets requirement for roll-over relief (into a corporate or unit trust structure); and
- express carveouts for charitable and deductible gift recipient beneficiaries.
What has not changed from consultation material?
There has, however, been limited movement in other areas. By way of example:
- the testamentary trust exception:
- continues to be limited to income derived from assets which were transferred to the trust as a result of a will, codicil, intestacy or similar order of the court, and does not exempt income derived from a replacement or rollover asset; and
- does not apply where the income is derived directly, or as a result of a scheme, for a purpose or purposes being to exclude the income from the minimum tax. Only merely incidental purposes are disregarded;
- where the trustee pays the minimum tax, body corporate beneficiaries do not receive a tax offset for the minimum tax paid on income that they made entitled to by a discretionary trust, and are assessed on the whole amount of that income, resulting in effective double taxation for the ‘bucket company structure’; and
- there is no effective stamp duty exemption for rollover relief offered to trustees. Treasury has sought to address this through the EET election framework, discussed in further detail below.
Other measures that were proposed in the consultation paper, including director liability for corporate beneficiaries, PAYG instalment obligations and a statutory right of reimbursement for the Commissioner from trust assets, do not appear in the exposure drafts.
All collection, notification and reporting matters have also been deferred for future legislation.
Why has the EET election framework been proposed?
The draft explanatory memorandum provided alongside the EET election legislation frames the EET election as a response to concerns that for many discretionary trusts, rollover into a fixed trust or corporate structure could incur significant state and territory duties. The election may also be attractive for trusts holding licences, contracts or financing arrangements which may be costly or difficult to transfer or may require consent or refinancing to be rolled into a new corporate vehicle.
In circumstances where a corporate structure is more desirable (for example, where would-be members could benefit from refundable franking credits, or the entity could operate as a base rate entity subject to 25% tax), the EET election does not resolve or ameliorate duty liabilities which might arise on rollover.
What is an excluded election trust election?
A discretionary trust that is in existence on 1 July 2028 will be able to make an election to make fixed distributions to pre-nominated beneficiaries. The trustee will be able to nominate unlimited numbers of individuals and entities (including companies) however there are significant restrictions on changing these after an election has been made. Where a valid EET election is in force in respect of a discretionary trust, the trust is taken not to be a minimum tax trust meaning that it is not subject to the 30% minimum tax on its ‘minimum tax income’. Instead trust distributions are treated in a similar way to how they apply to a normal fixed trust.
The fixed distribution will apply to distributions of capital from ‘excluded election trusts’ as they do to distributions of income. This is necessary because an EET nomination must allocate both income and capital in the same proportions, and the trustee must confer present entitlements to both in accordance with that nomination for the election to remain effective.
The EET election must be accompanied by a nomination specifying:
- each beneficiary to whom the trustee may confer present entitlement to a share of both the income and capital of the trust for each income year;
- each beneficiary’s share of income and capital, which must be equal—that is, the same proportion of income and capital for each beneficiary; and
- the total shares to be conferred, which must equal 100% of the income and capital of the trust.
The EET election is an alternative to the three-year roll-over relief available from 1 July 2027 for trusts wishing to restructure into another entity type. A trust may choose one regime or the other, but not both. The election applies from the 2028-29 income year and is only available to trusts in existence on 1 July 2028.
The new EET election framework will be familiar to trustees of discretionary trusts who have made a family trust election (FTE). Like an FTE, an EET is only able to be varied or revoked in certain circumstances.
An EET nomination generally cannot be varied, with only two narrow exceptions permitted:
- the death of a specified beneficiary; or
- a relationship breakdown involving two specified beneficiaries,
and in both cases the total allocation must remain at 100 per cent of income and capital.
The trustee may voluntarily revoke the EET election at any time, but once revoked it cannot be reinstated or remade, and the trust becomes subject to the 30 per cent minimum tax in future income years.
Automatic revocation is triggered by events including a failure to confer present entitlements in accordance with the nomination, the winding up or deregistration of a specified beneficiary company, or a change in the shareholders of a specified beneficiary company for reasons other than death or relationship breakdown.
The consequences of revocation are severe: in the year of revocation, beneficiaries are treated as never having been presently entitled, and the trustee is assessed on all of the trust's net income at the top marginal rate plus Medicare levy.
The framework restricts all trustee flexibility rather than targeting only the income-splitting behaviour the minimum tax was designed to address. The narrow grounds for variation and the consequences of revocation mean that ongoing compliance monitoring will be essential.
Signs of life in the bucket company?
Under the proposed minimum tax framework, a body corporate beneficiary does not receive a tax offset for minimum tax paid by a discretionary trust in respect of amounts to which it is made entitled.
This outcome was an intended consequence of the minimum tax from its inception as part of the 2026-27 Federal Budget; the budget night ‘explainer’ stated that the measures were to be designed to ‘ensure the minimum tax cannot be avoided by cycling income through a bucket company’.
However, the EET election framework may provide limited reprieve from this outcome. This is because a discretionary trust may make a valid EET election nominating an ‘eligible company’ corporate beneficiary.
Properly structured, the EET election may provide an opportunity to create an effective ‘bucket company’ structure.
