Fixed election, floating duty? The stamp duty questions on the discretionary trust changes

On 3 September 2026, the Albanese Government released draft legislation for the new minimum 30% tax on discretionary trusts (trust distributions and capital gains) announced in the May Budget (see Mallesons Tax Alert on Discretionary Trusts here).

To reduce the pressure on discretionary trusts to restructure, the draft legislation introduces two key measures. First, a trust in existence at 1 July 2028 can elect into a fixed-distribution regime (by becoming an excluded election trust (EET)) with pre-nominated beneficiaries and avoid the minimum tax without restructuring. Second, expanded rollover relief will be available for three years from 1 July 2027 for discretionary trusts restructuring into other arrangements (such as a fixed trust or company). The EET was brought in as an alternative to rolling over assets to a new entity to try to minimise transaction costs including stamp duty. The Federal Treasurer has said the EET regime "would not require a restructure and is not expected to result in state and territory stamp duties". However, the state revenue authorities have to date declined to confirm that position and are still in discussions with Treasury. Duty therefore remains the most significant unresolved cost of the reform.

This article focuses on the state stamp duty consequences of the Commonwealth's proposed minimum tax on discretionary trusts in the absence of any agreed exemption between Treasury and the States. In particular, it considers whether electing into the fixed-distribution regime, or restructuring with the benefit of rollover relief, could trigger transfer duty or landholder duty.

How discretionary trusts are currently subject to income tax

A discretionary trust that fully distributes its income and gains to beneficiaries is generally not taxed as a separate entity. Instead, it operates largely as a “flow-through” vehicle. Each year, the trustee decides which beneficiaries receive the trust’s income and capital, and in what amounts. A beneficiary who is presently entitled to a share of the trust’s net income is taxed on that share at their own marginal rate (which can be below 30%).

This flexibility is why discretionary trusts are widely used by family and small businesses to protect assets, manage irregular income, distribute profits and support succession across generations. Income can however be streamed at the trustee’s discretion, to beneficiaries on lower tax rates. The proposed minimum 30% tax is aimed at that outcome: it is intended to better align the tax rate on trust income with the rates paid by workers.

As such the new discretionary trust provisions encourage structures that ensure a “fixed” distribution and seek to provide the above conversion and rollover concessions for income tax purposes to allow discretionary trustees to restructure.

The stamp duty impact of the conversion and rollover concessions

Trustees of discretionary trusts that hold land or other dutiable property should not assume that either concessional pathway under the draft legislation is free of duty. The key practical implications are as follows:

1. Do not assume the election is duty-free. The Federal Government's view that the election is "not expected" to give rise to duty because it "only applies for Commonwealth income tax purposes" has not been endorsed by any state. NSW, Victoria and Queensland have each declined to rule out duty applying on the elections.
2. Map your dutiable property by jurisdiction. Duty exposure depends on where the trust's land and other dutiable property is located. The NSW, Victorian and Tasmanian positions appear to be the most at odds with the Commonwealth's statement, while WA has indicated that a nomination is unlikely to attract duty.
3. Analyse the mechanics, not just the label. In NSW, adding or removing beneficiaries and amending administrative powers is generally not dutiable. Converting a discretionary trust into a fixed trust, however, can attract duty on the whole unencumbered value of the dutiable property. Any declaration or acknowledgement of trust also needs particular care.
4. Budget for duty on a rollover into a company or fixed trust. The rollover relief deals only with income tax and CGT not duty.
5. Seek state-level clarification before acting. Taxpayers need clear public guidance from the revenue authorities before it can safely be assumed that an election has no duty consequences.

Duty trigger points

Transactions under the rollover concession results in the movement of interests in assets from the discretionary trustee to the new entity (such as a company or fixed trust). Those transaction should trigger duty payable on assets such as real property.

The draft legislation with its EET regime seeks to avoid the actual transfer of assets by the discretionary trustee by simply varying the terms of the trust to nominate fixed entitlements to specified beneficiaries which then determines how all future distributions are to be done.

However, varying a discretionary trust to give fixed entitlements risks a resettlement for stamp duty purposes. Relevantly, a discretionary object does not have any particular interest in the assets held by the discretionary trust (instead they only have a right to proper administration by the trustee) whereas a beneficiary of a fixed trust in comparison will usually give such right (and therefore a dutiable interest in the property).

A dutiable trust resettlement happens when changes to a trust, such as a deed of variation, a change in beneficiaries or vesting, or a beneficiary election, are so fundamental that the original trust is treated as ending and a new trust starting. Whether that has happened depends on how far the changes go. Where a resettlement does occur, the trust property is treated as moving from the old trust to the new one, which changes who owns it in equity. That can be a dutiable transaction, such as a declaration of trust over dutiable property such as land. Stamp duty can then be charged on the market value of that property, even though the trustee and the assets stay the same. This is why trustees should consider whether an EET election may cause a resettlement / creation of a new trust as beneficiaries which only had a contingent future interest (subject to the exercise of the discretion by the trustee) become fixed interest beneficiaries.

The discretionary trust changes at a glance

The draft legislation reduces, but does not remove, the risk of duty.

Key stamp duty takeaways — the fixed-distribution election

1. Election avoids the minimum tax without a restructure. Trusts in existence at 1 July 2028 can elect into a fixed-distribution regime with pre-nominated beneficiaries.
2. States have not confirmed the duty position. On 4 September 2026, Queensland Treasury and the Victorian and NSW revenue offices could not rule out charging duty on trusts that make the election.
3. Equitable interests are the focus. In several Australian States, a change in beneficial ownership is a dutiable transaction. This can include a change in the equitable interests in dutiable property where a person starts to hold property in a different capacity. Further, a change in a beneficiary’s interest in a fixed trust or change in the entitlement of beneficiaries is dutiable. An election alone could be enough to trigger such duty.
4. Landholder duty is also relevant. Permanently fixing beneficiaries' entitlements may have not just transfer duty but also potentially landholder duty implications.

Key takeaways — restructure rollover relief

1. Income tax and CGT only. The three-year rollover from 1 July 2027 does not address stamp duty or the regulatory consequences of a change in the legal entity.
2. Queensland has pushed back. Queensland has stated that trusts using the rollover relief could still be subject to duty, depending on how individuals within the trust are treated.
3. Duty costs can be material. The top duty rate (excluding premium property duty and foreign surcharges) is 6.5%.

Example - outline of DUT 017v2 — how NSW treats trust variations

Dutiable transactions

The NSW Duties Act imposes duty on "dutiable transactions" over "dutiable property", which includes NSW land. Dutiable transactions include:

• an agreement for the transfer / a transfer of dutiable property;
• a declaration of trust over dutiable property;
• an acknowledgement of trust; and
• since 19 May 2022 "any other transaction that results in a change in beneficial ownership" of dutiable property.

Converting a discretionary trust into a fixed trust

Most relevant to the election is Revenue NSW’s Ruling DUT 017v2 (Variations of Trust) (discussed in detail below), and in particular the example of the XYZ Family Trust. That discretionary trust owns NSW land worth $5,000,000, and the trustee converts it into a fixed unit trust by deed of amendment. Duty is payable on the whole unencumbered value of the underlying dutiable property, and the beneficiaries are liable. Revenue NSW also cautions that the change in beneficial ownership provisions "could affect certain arrangements including creating new interests and extinguishing interests in fixed trusts".

This ruling appears to challenge the Commonwealth's position that an election can be made free of duty in NSW. Even if no deed is amended, the election would fix beneficiaries' entitlements to income and capital, which may amount to a change in beneficial ownership.

Summary: when a trust variation IS and is NOT dutiable

DUT 017v2 took effect on 19 May 2022. It provides the clearest published statement of how a state revenue office approaches the transactions contemplated by the election. The following table summarizes the position (at paragraphs [16]–[23]):