Tax accountant the ‘great winner’: Government introduces next tranche of trust tax bill

Chalmers provided an outline of the bill that implements the core components of the 30 per cent minimum tax on discretionary trusts announced in the 2026 federal budget.

From 1 July 2028, trustees will pay the 30 per cent minimum tax on the taxable income of discretionary trusts. Beneficiaries other than corporate beneficiaries will receive non-refundable offsets for the tax payable by the trustee.

Chalmers said the minimum tax aligns with the marginal tax rate for workers on incomes between $45,000 and $135,000.

A range of trust types will be excluded, he added, including fixed trusts, charitable trusts, special disability trusts, and superannuation funds, along with primary production income and certain income relating to vulnerable minors.

Deceased estates and discretionary testamentary trusts established for genuine testamentary purposes will also be excluded.

Alongside this, the legislation also states that all distributions from trusts to registered charities and deductible gift recipients are also exempt, as well as distributions to other income tax-exempt entities like sporting clubs up to a reasonable cap.

“There are also a range of ways that trusts may be able to reduce the impacts of these changes, such as making different decisions about the distribution of income or, for businesses operating through a trust, paying a wage to employed beneficiaries,” Chalmers said.

He highlighted that the legislation also includes more options to limit or eliminate restructuring costs for small businesses and others using discretionary trusts.

This includes an option for trusts to make an election for income tax purposes, “and for as long as they choose to continue to make distributions to pre-nominated beneficiaries in line with an upfront nomination, they will be exempt from the minimum tax”.

Chalmers said this election will not require a restructure or restrict a trust’s discretionary powers, and “is not expected to result in state and territory stamp duties being payable”.

The bill also provides expanded rollover relief from 1 July 2027 for a period of three years for taxpayers who wish to restructure out of a discretionary trust into other arrangements such as a company or a fixed trust.

“For those who choose to restructure, the roll-over will provide relief from direct income tax consequences that would otherwise arise from transferring relevant trust assets from discretionary trusts and the related issue of membership interests in the transferee entity,” the bill’s explanatory memorandum said.

Chalmers said: “Together, these reforms will improve the sustainability and integrity of the tax system and better align the tax treatment of income from work and income from assets, while providing appropriate transitional arrangements for existing structures.

CGT, negative gearing reforms introduced

The bill introduced into Parliament also contains the next tranche of legislation to implement the government’s reform to negative gearing and capital gains tax (CGT).

It legislates the definition of a new residential dwelling and exemptions from the limits on negative gearing for affordable and public housing and other purposes.

The explanatory memorandum said the bill supports investment in new housing supply “by maintaining favourable tax treatment for investments in new residential dwellings and dwellings supporting affordable housing”.

“These dwellings are exempt from the general rule that losses from investments in residential dwellings must be quarantined to only be used to reduce income or capital gains from investments in residential dwellings,” the explanatory memorandum said.

“The 50 per cent CGT discount also remains available for new residential dwellings, unless the investor chooses to apply cost base indexation and the minimum tax on capital gains.”

The bill also amends the income tax law to give effect to the CGT reforms, clarifying the operation of the amendments for more complex or specific arrangements and making additional technical and policy changes. The explanatory memorandum said this was informed by ongoing stakeholder engagement.

The explanatory memorandum stated that the apportioning method would not be available in certain circumstances, particularly for MITs and AMITs with routine valuation and unit pricing regulatory obligations, and CGT event E4, E10, and G1.

CGT event E4 happens when a trustee makes a non-assessable payment to a beneficiary for a unit or fixed interest in a trust. CGT event E10 occurs when an AMIT's annual cost base reduction exceeds the cost base of that interest. CGT event G1 occurs when a company makes a non-assessable payment to a trustee for a share that is owned in that company, and the payment is not a dividend.

“These reforms are about removing the distortions that have locked too many young Australians out of housing for too long,” Chalmers said.

“They’re about making our economy more productive by ensuring investment decisions are made for economic reasons, not tax reasons. And they are about targeting the tax support for investment in housing to new builds and affordable housing – so that these investments are supporting new supply.”

Opposition calls for inquiry on trust legislation

In his fiery response to the introduction of the discretionary trusts tax bill, shadow treasurer Tim Wilson called for the bill to be referred to the economics standing committee for consideration and an advisory report, but was shot down.

“The legislation that’s just been introduced into the Parliament never went to the Australian community or a federal election,” Wilson said.

“The federal government took to the Australian people last election and said 50 times over they wouldn’t introduce exactly this type of legislation.  

Wilson pointed out that businesses who restructure will automatically have to pay stamp duty, and said Chalmers “has admitted this, although he is again deceiving the Australian community”.

“We also know that the Queensland Treasurer has turned around and said very clearly ‘he hasn’t consulted with us’,” Wilson said.

“People in Queensland… you’re going to have to pay stamp duty to conform with this legislation.”

Shadow assistant treasurer Kevin Hogan echoed Wilson’s calls for the legislation to be referred to the economics committee due to the looming compliance costs.

“You know who the great winner of this is going to be… is tax accountants,” he said.

“We have a productivity crisis in this country right now, and this isn’t going to be helped by new complicated legislation. There’s 350,000 small businesses across this country who use these structures to protect income.”

This legislation could bring uncertainty and increase compliance costs for these small businesses, Hogan said.

“When they go and see their tax accountant, it means the cost of that is going to go through the roof,” he said.

Greens says legislation watered down

On the other side of the aisle, the Greens said they will move for a Senate inquiry into the discretionary trust tax legislation, accusing the government of diluting it. It said Labor is squandering an opportunity to make the tax system fairer.

"In classic Labor fashion, the government has managed to water down its own position before the legislation has even reached Parliament,” Australian Greens Economic Justice spokesperson Senator Nick McKim said.

"These reforms appeared to be mildly positive when they were first announced, but there is a real risk that Labor’s political cowardice is transforming them into yet another missed opportunity.

"Australia's tax system is riddled with loopholes that overwhelmingly benefit the wealthiest 1per cent. Discretionary trusts are one of the ways wealthy people minimise their tax while workers pay more than their share.”

McKim said a Senate inquiry could examine the impact of Labor’s concessions and whether the legislation goes far enough to address the “rampant inequality” in the tax system.

He said that the original proposal for the reforms has been weakened by subsequent concessions, raising questions about how effective the legislation will be in closing tax loopholes “exploited by wealthy Australians”.