30 per cent tax on discretionary trusts – Government introduces third option

On 8 July 2026, Treasury released a consultation paper providing further detail on the design of the new tax, followed by a relatively short period to analyse the paper and prepare submissions.  

Grant Thornton’s submission raised a number of concerns. In addition, many small-to-medium business owners and private groups would face a difficult choice between the negative consequences of staying with their trust structure and a costly and disruptive restructure to a new type of entity. 

Draft legislation – new EET election

Draft legislation was released on 3 September 2026, which included a new option of making a once-only Excluded Election Trust (EET) election, nominating beneficiaries (including other trusts and eligible companies) to whom a specified percentage of both income and capital will forever be distributed.

A trust with a valid EET election in place will not be subject to the minimum 30 per cent tax regime. This is touted as an alternative to a costly restructure to a new type of entity.  

The EET election will be revoked automatically if distributions for an income year deviate from the nominated beneficiaries or their percentages. It can also be revoked voluntarily.

Where an EET election is revoked (whether automatically or voluntarily), the trust’s taxable income for the year of revocation will be subject to a 47 per cent tax impost, and the 30 per cent minimum tax regime will apply from the following year onwards.

Again, only a short period was provided to analyse the draft legislation and prepare submissions, which were due on 18 September.

Grant Thornton submission

Our submission on the draft legislation identified a number of concerns, including the selection below.

Policy objective

• The stated policy goal of “…better align(ing) the tax rate on trust income with the tax rates paid by workers” misunderstands the difference between capital and labour.  
• The direct focus on trusts is essentially treating the symptom instead of the underlying cause, being our well-known over-reliance on income tax.

Fixed-distribution EET regime alternative

• Opting into the EET regime may expose trustees to claims by beneficiaries of breaching their trustee duties.
• The effective permanent fixing of distributions is detrimental to business agility and unreasonably restrictive.
• The distribution requirements for maintaining the EET election will almost certainly conflict with those required to qualify for certain small business CGT concessions. 
• Changes in circumstances beyond the trustee’s control can trigger an automatic revocation of the EET election.
• There is no explanation behind the punitive 47 per cent tax impost in the year an EET election is revoked.
• There is zero margin for error. Immaterial errors or minor administrative oversights can cause a revocation.
• The restrictiveness will likely cause a decline in charitable giving.

Our recommendations included:

• Allowing the distribution percentages to nominated beneficiaries to vary up or down from year to year by 20 percentage points from that specified in the EET election.
• Allow trustees to reset the nominated beneficiaries and their percentage distributions every five years.
• Do not impose the 47 per cent tax in a year of revocation.  Instead, go directly to the 30 per cent minimum tax applying.
• Allow distributions to deviate from the nominated beneficiaries and percentages when required to qualify for small business CGT concessions.
• Provide the Commissioner of Taxation with a discretionary power to disregard the revocation of an EET election where it arises due to an immaterial error or honest mistake (akin to the one for Division 7A breaches).

Relating to the policy more broadly, we reiterated the difficulty in reconciling why small-to-medium businesses and private groups should be stripped of a number of commercial advantages that larger corporate groups will continue to enjoy.

Increase in challenging options from two to three

Since the Budget announcement, two challenging options were looming in the lead-up to 2028: consequences of the 30 per cent minimum tax versus significant restructure costs.

The proposed fixed-distribution EET regime is shaping up to be merely a third challenging option.

We’ve got your back

We are here to advise you on navigating these new laws.  Everyone’s circumstances are different, and you will require a tailored approach that is right for you.

We’ll be speaking to clients soon about conducting a review of your affairs and providing appropriate advice. Our goal is to assist you to make decisions on an informed basis.

In the meantime, please contact your trusted Grant Thornton adviser to discuss any aspects of this policy.

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