The Federal Government has released draft legislation relating to the proposed 30% minimum tax on discretionary trusts, first announced as part of the 2026–27 Federal Budget. Importantly, these changes are not yet law and remain subject to consultation and legislation.
For small business owners operating through discretionary trusts, the proposed changes are significant and may require careful consideration over the coming months.
What Was Announced in the 2026 Budget?
The Federal Government previously announced a proposed 30% minimum tax on discretionary trust income, intended to apply from 1 July 2028.
Under the original proposal, many small businesses operating through discretionary trusts may have needed to consider restructuring into companies or fixed trusts to avoid the minimum tax applying.
However, restructuring can create additional complexity and cost. This may include stamp duty, valuations, legal advice, accounting advice and the transfer of property or financial assets.
For many small business owners, this created a difficult decision: accept the potential impact of the new tax or consider a costly restructure.
The Proposed Update: Fixed Distribution Election
The Government has now released draft legislation that includes a potential alternative option for discretionary trusts.
Rather than requiring eligible businesses to restructure, the draft legislation proposes that discretionary trusts may be able to elect to make fixed distributions to pre-nominated beneficiaries.
In simple terms, this would mean the trust nominates fixed proportions for distributions to existing beneficiaries. If the trustee continues to distribute in line with those nominated proportions, the trust may be exempt from the proposed 30% minimum tax.
This may allow eligible businesses to maintain their existing trust structure, while avoiding some of the costs and disruption that can arise from restructuring.
An Important Condition
While the proposed fixed distribution election may be a welcome development, it also comes with an important condition.
If the trustee later distributes income in a way that does not align with the nominated fixed proportions, the election may be revoked. If this occurs, the proposed minimum tax could apply in future years.
This means trustees will need to carefully consider whether a fixed distribution approach is appropriate for their circumstances before making any election.
Walshs’ Position
Walshs will continue to monitor the Government’s position and provide updates as more information becomes available.
We recognise that planning during periods of legislative uncertainty can be challenging. While the proposed fixed distribution election may provide a practical pathway for some small businesses, the final rules are not yet confirmed.
Our position remains grounded in current enacted law until any proposed amendments are legislated.
If you have any questions about how this may affect your structure, please contact the Walshs team via enquiries@walshs.com.au on 07 3221 5677.
