Lawyer questions whether government wants tax reform feedback

“Almost 26 years ago, there were the proposed changes to tax trusts as companies, which had similar vibes to what we have now. But there was significant consultation that took place over two to three years, including a Board of Taxation review.”

The government released the draft legislation to implement the core elements of its 30 per cent minimum tax on discretionary trusts, opened consultation on 3 September and closed it on 18 September 2026.

In the draft legislation, the government added a new option which enables a trust to be exempt from the minimum tax if it elects to make fixed distributions to pre‑nominated beneficiaries, as an alternative to roll‑over relief.

The draft legislation includes exposure drafts on the minimum tax, imposition bill, rollover relief, and the electable regime.

On 4 August, the government released the second tranche of the capital gains tax and negative gearing changes after parliament passed the first stage of legislation, with submissions closing on 21 August 2026.

“Have a look at all the exposure drafts that were released in relation to the minimum tax on discretionary trusts. We’ve got 18 days of consultation,” Dunn said.

“We’ve got significant changes to CGT in the first tranche which had issues. The government has tried to address them in tranche two. The government is aware of more issues that need to be resolved around the interaction of tranche two with other laws. The second tranche stated that there’s going to be further tranches.”

Dunn remarked that practitioners and professional bodies are stretched for time and resources as they keep pace with the onslaught of draft legislation and provide the government with timely, appropriate feedback from taxpayers and professionals likely to be impacted by the proposed changes.

“That sends a strong message. Is the government actually open to hearing how this is going to impact Australian taxpayers and their advisers?” Dunn asked.

Limitations of EETs

The exposure draft on the electable regime said the bill provides that trustees of discretionary trusts subject to the minimum tax that exist on 1 July 2028 can elect for the trust to be an excluded election trust (EET). This can only be made in the income year commencing on or after 1 July 2028, meaning trustees can only make the EET election in the 2028–29 income year.

“There’s a significant limitation on when a trustee can make an election,” Dunn said.

“The regime is intended as currently drafted that it will only be available for trusts that are in existence before 1 July 2028. So, it’ll be a single point in time option for trustees to make the election. The legislation as it’s drafted says that it has to be made in the approved form and lodged either by the earlier of the due date for lodgment of the trust tax return or the actual date of lodgment.”

Dunn underscored that practitioners and tax agents feel overwhelmed by the significant change being proposed.

“There are pressures on the profession with limited resources. There’s just a shift in the way that things are being done. There’s a shift in the Tax Office approach. They’re taking a much harder line,” she said.

The exposure draft on the electable regime also states that if a beneficiary who is specified in an EET nomination passes away in an income year after the EET election is made, the trustee can reallocate the deceased beneficiary’s share of income and capital.

The trustee can allocate the deceased beneficiary’s share of the income and capital to existing specified individual beneficiaries or other individuals who are capable of benefiting under the trust deed. However, only individuals who are beneficiaries of the deceased individual’s estate are eligible to be specified.

“That creates uncertainty and raises questions,” Dunn warned.

“What if a person who is a beneficiary under the EET nomination lacks capacity and they can’t change their will? What happens if someone dies intestate? What happens if there’s a challenge to the will? What happens if from an estate’s perspective, there’s a claim on the will? There’s an agreement in the court to make a gift or a distribution to a person from the estate to somebody that wasn’t named in the will. Could that person be a potential beneficiary?”

Dunn flagged that it is critical to understand the interactions between trust law, tax law, estates, and succession.

Tax advisers and legal experts urged to work together

She encouraged accountants to pause on providing clients specific advice during this “very difficult time” as the industry awaits further tranches of legislation to resolve issues of interactions with existing law.

While the government has said the election would not require a restructure and is not expected to trigger state and territory stamp duty, she said relying on this statement without acquiring advice from legal experts on trust law and duties could expose clients to high and unexpected costs.

“If somebody acts based purely on what the government has said in Treasury’s fact sheet, they could expose their clients to significant and unexpected costs while putting themselves at professional risk,” Dunn said.

Now is the time, she said, for tax advisers to collaborate with legal advisers who can advise on trust law issues and stamp duty implications to understand the income tax consequences for their clients.