The Government is today releasing a consultation paper on the implementation of the minimum tax on discretionary trusts.
These reforms are all about making the tax system fairer by better aligning the tax rate on trust income with tax rates paid by workers, and will help fund income tax cuts for workers.
Creating a fairer tax system is a key aim of our ambitious tax reform package, along with making it easier to buy a first home and cutting income taxes for workers again and again.
Discretionary trusts allow some people to plan their tax affairs in ways that aren’t available to most Australians.
From 1 July 2028, trustees will pay a minimum tax of 30 per cent on the taxable income of discretionary trusts.
The minimum tax on discretionary trusts won’t change or limit the use of trusts for legitimate reasons, but will more closely align the tax rates for trusts with the tax rates paid by workers and families who earn a living from wages.
Over 90 per cent of small businesses will not be affected by this change.
Small businesses operating through discretionary trust structures will be eligible for generous rollover relief if they want to restructure.
We’ve already outlined the core components of this reform and have made some key details and exemptions clear.
Other types of trusts will be exempt, including fixed trusts, widely held trusts, complying superannuation funds, special disability trusts, testamentary trusts, deceased estates and charitable trusts.
We have been clear that some types of income, such as primary production income and certain income relating to vulnerable minors, will also be excluded.
We will also exempt income from all types of discretionary testamentary trusts from the minimum tax provided they are established for genuine testamentary purposes.
The Government’s consultation paper seeks feedback on further implementation details, including:
- Implementation of the core arrangements for discretionary trusts including exclusions;
- The treatment of distributions to income‑tax exempt entities like charities;
- Implementation of expanded rollover relief for three years from 1 July 2027 to support small businesses and others that wish to restructure out of discretionary trusts;
- The treatment of excess franking credits; and
- Appropriate collection mechanisms to support the minimum tax.
The paper also considers the High Court’s recent decision in Commissioner of Taxation v Bendel, which related to matters predating the minimum tax on discretionary trusts measure.
The previous government announced but didn’t enact a measure from the 2018-19 Budget that would bring unpaid present entitlements (UPEs) within existing Division 7A integrity provisions. The consultation paper seeks views on how to implement this measure, and any interactions between the treatment of UPEs to a corporate beneficiary and the minimum tax on discretionary trusts.
The paper is available on the Treasury consultation website.
