Canberra Has Tabled Its Trust Tax. The Exit Door Is Wider Than the Tax

Treasurer Jim Chalmers introduced the Treasury Laws Amendment (Tax Reform No. 3) Bill 2026 to the House of Representatives on Wednesday morning. From 1 July 2028, trustees of discretionary trusts will pay a 30 per cent minimum tax on the trust's taxable income, with non-refundable offsets flowing to individual beneficiaries, he told the House. The rate, he said, "aligns with the marginal tax rate for workers on incomes between $45,000 and $135,000". Fixed trusts, charitable trusts, special disability trusts, superannuation funds, deceased estates, primary production income and distributions to registered charities are excluded.

The case for the measure is a distribution argument. The number of discretionary trusts has more than doubled in 20 years to over 800,000, Chalmers said, the majority of trust income flows to the top earning 10 per cent of households, and Treasury analysis of 2022-23 found families with a discretionary trust paid an average tax rate around four percentage points lower than families with similar incomes and no trust. The government has previously estimated the measure would raise about $4.5 billion over five years, and says it funds income tax cuts for 13 million workers.

The Coalition has ruled out supporting any new tax, so Labor needs the Greens in the Senate.

From the analysis

The bill is much softer than the May Budget version, and the softening is the story. Schedule 3 lets any existing trust elect to make distributions to pre-nominated beneficiaries in line with an up-front nomination and, for as long as it does so, stay exempt from the minimum tax. The election does not require a restructure, does not restrict the trust's discretionary powers and, the Treasurer said, is not expected to trigger state stamp duty. Schedule 2 adds expanded rollover relief from 1 July 2027 for anyone who would rather convert to a company or fixed trust. Farmonline reports the election is irrevocable, with nominees changeable only on death or family breakdown.

That leaves a tax with two tiers. Trusts created after the start date face the 30 per cent floor on their taxable income, whoever the beneficiaries are. Trusts that already exist and are willing to lock in who gets what can keep their current treatment indefinitely. The government's own figures carry the point. It estimates 350,000 active small businesses used a discretionary trust in 2022-23, about one in six, and Treasury says 140,000 of those would owe nothing under the new rules. Chalmers told the House that more than 90 per cent of small businesses would be unaffected in any given year.

We think a measure that taxes a legal structure rather than an income stream was always going to end up here, with carve-outs for the politically organised and a workaround for everyone with an adviser. If the problem is that trust income reaches beneficiaries on low marginal rates, the cleaner fix is in the attribution rules, applied to all trusts at once, rather than a 30 per cent floor that existing trusts can elect out of. Geoff Wilson of Wilson Asset Management puts advice and restructuring costs at $8 billion to $13.3 billion, which would be a large sum to spend reorganising paperwork to reach much the same tax position. The AFR reported on Tuesday that Treasury is again pressing the states to waive stamp duty for those who do restructure, which tells you the federation has not settled the question either.

The politics now move upstairs. The Coalition has ruled out supporting any new tax, so Labor needs the Greens in the Senate. Greens economic justice spokesman Nick McKim says the party will move for an inquiry and wants parents who pay private school fees through trusts to pay more, which means no vote before late this year at the earliest. Master Builders Australia chief executive Denita Wawn says "no common ground has been found" with small builders, and the National Farmers' Federation wants the primary production exclusion widened to farm leases and agritourism. The bill also carries the clarifying schedules for the capital gains tax changes, the negative gearing limits for new dwellings and transitional relief for the first year of payday super. The question for the Senate inquiry is a simple one: if most existing trusts can elect their way out, who exactly will be paying the $4.5 billion in 2028?

The Semaform

The news

Treasurer Jim Chalmers introduced the Treasury Laws Amendment (Tax Reform No. 3) Bill 2026 on 14 October, legislating a 30 per cent minimum tax on discretionary trusts from 1 July 2028, alongside an election that lets existing trusts stay exempt by fixing their distributions.

Sox’s view

Taxing a structure rather than an income stream has produced a two-tier regime with a wide exit door for existing trusts. A fix in the attribution rules applied to all trusts would raise the money with far less restructuring cost.

Room for disagreement

The government says the measure aligns the tax on asset income with the tax on wages and funds income tax cuts for 13 million workers; the Greens want it tightened, while business groups and the Coalition say it punishes small operators who use trusts for legitimate reasons.

Sources

A human editor is accountable for this analysis. Read our editorial standards, how we use AI, what the content labels mean, and how to ask for a correction.

Canberra Has Tabled Its Trust Tax. The Exit Door Is Wider Than the Tax

The Semaform

Sources

More from the AU Edition

Snowy 2.0 Will Cost $25 Billion to Save $7 Billion. Canberra Says Stopping Would Cost More

The RBA's Deputy Has Named the Only Good Reason for a Fifth Rate Rise. It Has Nothing to Do With Oil

A Dreaming Story Arrived After the Report. That Is Why the McPhillamys Ban Fell