The Government has introduced the Treasury Laws Amendment (Tax Reform No. 3) Bill 2026 (the Bill), which proposes to impose a 30 per cent minimum tax on the net income of ‘minimum tax trusts’ (Minimum Tax) from 1 July 2028. This represents a fundamental departure from traditional flow-through trust taxation principles.
The Bill is the product of a compressed consultation process and is intended to address perceived tax advantages associated with discretionary trusts, particularly the ability to split income among beneficiaries within a family group with lower marginal tax rates. The Bill responds to some of the concerns raised during consultation, but significant areas of uncertainty remain, most notably around what trusts are subject to the Minimum Tax. The Bill has been referred to a Senate committee for inquiry.
The Bill is an omnibus bill which also contains further CGT and negative gearing amendments. This article focuses only on the Minimum Tax and its associated roll-over and electable regimes.
Key takeaways
- From income years commencing on or after 1 July 2028, the trustee of a ‘minimum tax trust’ will be liable to tax at a minimum rate of 30 per cent on the trust's ‘minimum tax income’. Non-corporate beneficiaries will receive a corresponding non-refundable tax offset for the tax imposed on the trustee. However, because the offset cannot be refunded or carried forward, it may be of limited value to low-income beneficiaries and beneficiaries with losses, while the absence of any equivalent offset for corporate beneficiaries can result in effective double taxation of trust income distributed to corporate beneficiaries.
- Every trust estate will be a ‘minimum tax trust’ unless it falls within a specified exclusion. For most trusts, the practical pathway out of the regime will be satisfying the new, broader definition of ‘fixed trust’ in section 272-65 of Schedule 2F to the Income Tax Assessment Act 1936 (Cth) (ITAA 1936). The ultimate scope of the regime therefore depends heavily on future ministerial instruments and ATO guidance, leaving ordinary commercial and investment trusts uncertain of their status.
- Whether a trust is a ‘minimum tax trust’ will be tested ‘at any time during’ the income year rather than at year end. As a result, a trust that ceases to satisfy the fixed trust requirements even briefly (for example, during seeding, a capital raising, a deed amendment or a wind-up) may be exposed to the minimum tax on its net income for the entire year, as the liability is not apportioned.
- Although the Bill contains exclusions for securitisation vehicles, employee share trusts and approved worker entitlement funds and certain testamentary trust income, many commercial trusts will depend on future ministerial instruments to fall outside the regime. In addition, there is no grandfathering for existing wills, meaning testamentary trusts that simply permit distributions to companies or trusts may fall outside the exclusion even if no benefits were ever to flow to those categories of beneficiaries.
- Trusts may take steps to fall outside the regime by restructuring under a transitional roll-over available from 1 July 2027 to 30 June 2030, or, in the case of trusts in existence on 1 July 2028, by making a one-off election in the 2028–29 income year to fix beneficiaries' entitlements. However, the practical utility of the roll-over may be limited as it does not address State and Territory duties, GST, restructuring costs or Part IVA risks, and aspects of the relief depend on an as-yet unreleased Ministerial determination. The election regime is also rigid, with any revocation (even involuntary) resulting in tax at the top marginal rate on all of the trust’s net income for that year.
- Although the Minimum Tax is intended to apply from income years commencing on or after 1 July 2028, key administrative and substantive aspects of the regime remain to be addressed through future legislation and Ministerial instruments. Given the transitional roll-over window opens on 1 July 2027 and elections must be made in the 2028-29 income year, trustees may need to make restructuring and election decisions before the full operation of the regime is settled.
Overview of the Bill and outstanding concerns
The Bill is largely consistent with the September 2026 exposure draft and for that reason we have focused on both the key elements of the regime as well as areas of complexity that remain.
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The ‘minimum tax trust’ |
The core liability provision is new section 101AA of the ITAA 1936. The trustee of a trust estate is assessed and liable to pay tax on so much of the trust's net income as is ‘minimum tax income’ if the trust estate has net income for the year, is a “minimum tax trust” at any time during the year, and the trustee is not already assessed under subsection 99A(4) or (4B) (which broadly apply where no beneficiary is presently entitled, and which already produce a rate above 30 per cent). The Explanatory Memorandum to the Bill (the EM) explains that the tax is levied on the trustee because the trustee controls distributions. |
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Issues and concerns |
The move to an "at any time” test means that a trust that fails the fixed trust definition only briefly – for example, during seeding, a capital raising, a deed amendment or a wind-up – may be exposed to the minimum tax on its net income for the whole year, as the Bill does not apportion the liability. This heightens the importance of a clear and certain fixed trust test (discussed below). |
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The new fixed trust definition |
Under section 101AB(1), a trust estate is a minimum tax trust at a particular time unless, at that time, relevantly (among others) it is a fixed trust within the meaning of section 272-65 of Schedule 2F of the ITAA 1936. A trust will be a fixed trust if either:
The second limb is intended to accommodate trusts containing limited administrative or amendment powers that do not materially affect beneficiaries' economic entitlements, while also allowing the Minister to provide further guidance by legislative instrument. The EM indicates that most widely held trusts, managed investment trusts and AMITs are expected to qualify as fixed trusts. |
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Issues and concerns |
While the Bill narrows the second limb of the “fixed trust” test from the definition in the Exposure Draft, there are still certain concerns with the definition as drafted, including:
For commercial trusts, fixed trust status may need to be revisited whenever there is a deed amendment, a new class, a change in pricing or valuation methodology, a governance change, or an alteration to winding-up rights, an additional compliance burden for taxpayers. |
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Minimum tax income and the testamentary trust exclusion |
The Bill provides that the minimum tax income is the net income of the trust, other than amounts excluded by sections 101AD or 101AE. The exclusions are:
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Issues and concerns |
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Minimum tax offset |
The new rate imposed by section 12AB of the Income Tax Rate Act 1986 (Cth) (the Rates Act) operates as a ‘top-up’, as follows:
Importantly, under section 101AG, a beneficiary whose share of the adjusted net income includes an amount reasonably attributable to the trust's minimum tax income is entitled to a tax offset equal to 30 per cent of that amount. The offset is not refundable, and is not available to a body corporate or to an exempt entity. Section 101AH reduces other trustee-related rebates (for example, under sections 98A and 100) to prevent a double benefit where tax paid by the trustee is credited both ways. |
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Issues and concerns |
Since the offset will be non-refundable and cannot be carried forward, it may be partly or wholly wasted in common situations:
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Rollover relief |
Schedule 2 of the Bill inserts Subdivision 126-Z into the Income Tax (Transitional Provisions) Act 1997 (Cth). It provides roll-over relief for transfers of assets by the trustee of a minimum tax trust to a single transferee (for example, a company, a fixed trust, a partnership or an individual) made between 1 July 2027 and 30 June 2030. All of the trust’s assets (other than excluded assets, such as primary production assets, assets needed to meet genuine liabilities and assets with an aggregate cost of $1,000 or less) must be transferred within that window. |
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Issues and concerns |
The roll-over may be of limited practical utility because:
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The election regime |
The electable regime is an alternative to restructuring. In effect, it allows the trustee of an existing discretionary trust to give up its discretion and, in exchange, stay outside the minimum tax regime without moving any assets. It is contained in new Division 6F of Part III of the ITAA 1936. In broad terms, it works as follows.
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Issues and concerns |
The elective regime provides an alternative to restructuring, but its scope is relatively narrow. The election is available only to trusts in existence on 1 July 2028 and can only be made in the first income year commencing on or after that date. Permitted variations are limited to death and relationship breakdown, meaning the regime does not accommodate a range of common life events, including incapacity, the birth of a child, a beneficiary's bankruptcy, or changing circumstances affecting vulnerable beneficiaries. The EM further states that the Commissioner's discretion is not intended to address changes in beneficiaries' personal circumstances. Nor does it extend to revocation events involving a nominated company, such as its winding up or changes in its shareholding. The consequences of revocation also appear disproportionate, particularly where revocation arises automatically from events outside the trustee's control. Examples include the deregistration of a nominated company, changes in its ownership, estate administration events or outcomes arising from family law proceedings. In such cases, genuine beneficiary entitlements for the entire income year are disregarded and the trustee is taxed at the top marginal rate plus Medicare levy, without any distinction between deliberate non-compliance, inadvertent errors and involuntary events. Similar concerns arise where a trustee revokes the election prospectively for bona fide non-tax reasons. A more proportionate approach would be to permit the election to continue, or be varied, following an involuntary event or a promptly rectified error. Alternatively, the trust could transition into the minimum tax regime from the time of the relevant event, without the imposition of a penalty year. The regime also presents a number of practical challenges. Trusts settled after 1 July 2028 are unable to make the election at all, in contrast to the more flexible framework that applies to family trust elections. Trustees will also need to confirm that the trust deed authorises the making of the election. Accordingly, the election may be considerably less straightforward in practice than it appears at first glance. |
Where to next?
The Bill has been referred to a Senate committee for inquiry, with their report due on 13 November 2026. Mallesons prepared a submission to the committee.
In the meantime, trustees should begin reviewing their trust deeds against the new fixed trust definition, and considering whether a restructure (from 1 July 2027) or an election (in the 2028–29 income year) may be appropriate for their circumstances.
Please contact the Mallesons Tax team if you would like to discuss how the Bill may affect you.
