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By: David Montani, Paul Banister, Dharav Gandhi, Yan Wong
08 Sep 2026 7 min read
With the release of the draft legislation, the policy now includes an option to elect into making fixed distributions to pre-nominated beneficiaries, whereby the minimum 30 per cent tax will then not apply.
In the 2026 Federal Budget, the Government announced that from 1 July 2028, trustees of discretionary trusts will be subject to a 30 per cent tax on the trust’s taxable income. Corporate beneficiaries will not be entitled to a credit for the trustee tax paid, resulting in double taxation.
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 staying with their trust structure and a costly and disruptive restructure to a new type of entity.
We urged the Government to reconsider the policy in its entirety, but if they were to proceed, we made a series of recommendations.
The main shift of the draft legislation is that trusts making the once-off EET election to make fixed distributions to pre-nominated beneficiaries will not be subject to the new tax. This is intended as an alternative to restructuring assets and/or businesses out of a trust and into a new type of entity, such as a company or fixed trust.
Key points:
It is welcome that many unit trusts may be able to amend their deed, if required, to come within the broadened meaning of fixed trust and thus be excluded from the minimum tax. However, many issues arise with the new EET regime.
Although trustees of discretionary trusts retain their discretionary powers in appointing trust income and capital, making an EET election effectively locks them into a fixed pattern of appointing income and capital. This represents a significant departure from the traditional flexibility of discretionary trusts, where distributions can be decided from one year to the next based on the circumstances at the time.
It is easy to foresee a trustee making an EET election, nominating beneficiaries and their respective percentages, and at a future time in changed circumstances, that distribution pattern becomes sub-optimal. It also could result in having to keep nominated trust and company beneficiaries in existence long after their use or purpose is concluded.
Further, there are also trust law matters to consider. Some trustees maintaining a fixed distribution decision pattern may find themselves in breach of their obligation to genuinely exercise their discretion and give real and active consideration to the interests of beneficiaries when making distribution decisions.
In addition, concerns remain that making the EET election or amending a trust deed to convert it to a fixed trust may still trigger exposure to a stamp duty liability in some states.
The above will result in greater complexity, inefficiency and – ironically – more tax planning to manage the imposed rigidity, conflicting with the notion of improving productivity and job-creating entrepreneurialism.
Where a trustee subsequently appoints income/capital not in accordance with the nominated beneficiaries and/or percentages, the EET is automatically revoked. The trust’s taxable income will be taxed at 47 per cent for that income year, and the 30 per cent minimum tax regime will apply in subsequent years.
As we noted in an earlier insight, small-to-medium businesses and private groups were confronted with two equally unattractive options from 1 July 2028: facing an after-tax profit reinvestment rate as low as 53 cents in the dollar or incur significant costs to restructure out of a trust to a different type of entity.
Opting into the rigid EET regime is now a third option, albeit one only marginally less unattractive than the other two.
However, larger tax-consolidated corporate groups will continue to benefit from flexibilities and cost-effective efficiencies that private groups will now be denied.
In our submission to the July 2026 consultation paper, on the basis this policy was going ahead (which we recommended against), we recommended a similar concept of pre-nominating beneficiaries to whom would be distributed a set percentage of income and capital. However, we stipulated that a trustee be able to reset the beneficiaries and percentages every seven years.
We continue to assess the practical implications of this policy following this new development, and the options that may be available in different circumstances. This analysis will inform future discussions with clients so that informed decisions can be made ahead of 1 July 2028.
In the meantime, please contact your trusted Grant Thornton adviser to discuss any aspects of this policy.
The announced 30 per cent minimum tax on discretionary trusts creates significant challenges for private groups.
The Government has announced revisions to several tax measures in the Budget, affecting capital gains tax treatment for small businesses, a special carve-out for start-ups, and a conditional exclusion for discretionary testamentary trusts from the 30 per cent tax on trusts.
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