Good tax reforms shouldn’t drown businesses in complexity

Singh underscored that he understands the intention behind the government’s proposals is to create a fairer tax system and reduce tax advantages associated with income splitting.

Indeed, when Treasurer Jim Chalmers introduced the Treasury Laws Amendment (Tax Reform no. 3) Bill 2026 and the Income Tax Rates Amendment (Minimum Tax on Discretionary Trusts) Bill 2026 recently, he emphasised that the tax reforms are aimed at making the tax system “fairer and more sustainable”.

He said the proposed discretionary trust tax legislation is aimed at better aligning the tax treatment of income from assets and income from wages and salaries, “which is how most people earn a living”.

“There are legitimate reasons to use a trust, but they also allow a small number of people to plan their tax affairs in ways that aren’t available to most Australians,” Chalmers said.

“More than 95 per cent of individual tax filers don’t receive trust income and more than 90 per cent of small businesses will not be affected by these changes in any given year.”

However, Singh was quick to point out that it is important to recognise that trusts are not only used for tax planning.

“They also serve genuine purposes such as asset protection, succession planning, and managing family investments,” Singh said.

If the proposals become law, Singh suggested that it presents an opportunity for business owners to revisit their existing structures and ensure that they still align with their long-term goals.

“It is critical for the government to get the balance right,” he said.

“There needs to be clear transitional arrangements. Input from the industry will go a long way in making these changes work in practice.”

It’s all about the timing

For AH Jackson & Co director Matthew Smith, the most interesting feature of the proposed discretionary trust tax bill is the timing of commencement with the next federal election.

The minimum 30 per cent tax will apply to the net income of discretionary trusts from 1 July 2028 should the bill become law, while the federal election is expected to be held by May 2028.

“Restructuring rollover relief is provided over a three-year period from 1 July 2027,” Smith told Accountants Daily.

“However, no doubt taxpayers and advisers will be watching the election promises closely in the 2028 financial year to understand if the opposition would look to formally repeal part or all these new rules.”

In addition, Smith said some states are yet to resolve their stamp duty positions with respect to the asset rollovers.

However, he noted that the NSW government has promised that if re-elected, it will ensure that discretionary trusts opting into the excluded election trust (EET) arrangement pay no stamp duty by establishing what it called an “Australian-first state-level” rollover relief scheme.

The West Australian government has also committed that trusts choosing to become an EET will not pay stamp duty.

“There is, however, no detail for rollovers outside of the EET pathway,” Smith said.

The Tax Institute echoed concerns about the lack of clarity on stamp duty consequences for trusts that restructure, while Queensland has declined to provide similar relief to NSW and Western Australia.

“We urge all states and territories to confirm the duty treatment of both pathways before trustees have to decide,” head of tax and legal Julie Abdalla said.

“Families and small businesses need certainty on stamp duty to make informed decisions about their structures. There is no cost-free option here. Taxpayers will need to seek professional advice on their personal circumstances to determine whether to leave their arrangements as they are, make an election, or restructure out of a trust.”

Abdalla told Accountants Daily that many families and small businesses operating trusts would require advice on how best to navigate the complex new rules and may need to implement a “costly” restructure.

“Uncertainty about stamp duty makes this process even more difficult,” she said.

“The Tax Institute also considers this process a wasted opportunity to improve other aspects of the taxation of trusts, such as the dysfunctional family trust distribution tax regime.”