Australian Treasurer Jim Chalmers has introduced revised legislation for a proposed 30 percent minimum tax on discretionary trusts, incorporating exemptions designed to alleviate concerns from business groups, farmers, and family-owned companies. The updated draft legislation, released by the government, includes several concessions aimed at allowing many Australians to avoid the measure without significant financial restructuring.
The tax, originally announced in the May Budget and initially projected to raise $44.9 billion over nine years, would impose a 30 percent minimum tax on trust distributions and capital gains. However, the government has now agreed to exempt charities and numerous community organizations from this new tax. Distributions to registered charities, deductible gift recipients, and certain tax-exempt organizations, such as sporting clubs, will be excluded, though a cap for some exemptions is still under finalization.
A significant concession allows trusts established before July 1, 2028, to opt into a new fixed-distribution system. This would enable them to bypass the minimum tax entirely without needing to undergo costly restructures. Under this arrangement, trustees can pre-nominate beneficiaries and distribute income accordingly, shifting from a discretionary to a fixed structure.
Treasury also intends to broaden the definition of a 'fixed trust.' This expansion aims to exclude a range of commercial trust structures, such as bare trusts, managed investment trusts, and other widely held arrangements, from the new tax.
Furthermore, the government has enhanced tax relief for those choosing to change their trust structures. The draft legislation offers three years of rollover relief, commencing July 1, 2027, which permits trust owners to transfer assets into companies or fixed trusts without incurring capital gains tax liabilities.
Despite these federal measures, uncertainty persists regarding state-based stamp duties. While the federal government is working to reduce restructuring costs, the legislation does not eliminate the possibility that state governments may impose stamp duty on trust asset transfers to different structures. This situation could potentially lead to future disputes between the federal government and state governments if a large number of trust owners are compelled to reorganize their affairs.
The proposed tax changes are expected to impact hundreds of thousands of discretionary trusts, which are frequently utilized by family businesses, farmers, and investors. Treasury estimates indicate that approximately 350,000 active small businesses operate through discretionary trusts. However, the department also suggests that around 140,000 of these businesses are unlikely to face additional tax or require restructuring in any given year.
The government has initiated a two-week consultation period for the draft legislation before its final introduction to Parliament. The proposed tax changes are expected to affect hundreds of thousands of discretionary trusts.