Consultation on discretionary trust reform
The Treasury has released a consultation paper on the proposed 30% minimum tax on discretionary trusts, which was announced in the 2026-27 Federal Budget. The proposed measure will introduce a 30% minimum tax on discretionary trusts from 1 July 2028. However, trusts that choose to restructure may be eligible for expanded rollover relief for 3 years from 1 July 2027. Treasury is looking to get feedback on various aspects of the proposed changes, including:
- Expanding rollover relief to help taxpayers restructure away from discretionary trusts
- How excess franking credits should be treated; and
- How the minimum tax should be collected.
According to the proposed rules, it will exclude various types of trusts, including:
- Testamentary trusts
- Fixed trusts
- Superannuation funds
- Charitable trusts
- Deceased estates; and
- Trusts earning primary production income.
Certain types of income would also be excluded, including some income relating to vulnerable minors.
Treasury is also looking to provide three years of rollover relief for businesses and other taxpayers that choose to restructure out of discretionary trust arrangements. However, it is not yet clear exactly how this rollover relief will operate.
The consultation paper also looks at how the proposed new rules would interact with unpaid trust distributions owed to corporate beneficiaries, following the High Court’s decision in the Bendel case.
Treasury’s paper suggests that the Government is considering changing the legislation in line with proposals announced in the 2018–19 Federal Budget.
Tranche 2 of CGT and negative gearing legislation
Treasury has issued draft legislation and explanatory material for the 2nd stage of changes to the CGT and negative gearing rules announced in the 2026-27 Federal Budget. The draft legislation identifies various issues and gaps identified by practitioners after the first legislative package was released.
Key changes include:
- Individuals may be eligible to continue using the existing negative gearing rules when they acquire an interest in a property from a spouse or former spouse following a death or relationship breakdown.
- Certain social housing, NDIS housing, public housing and build-to-rent developments will be exempt from the negative gearing changes.
- The existing negative gearing rules can continue to apply where a primary residence was bought before 12 May 2026 and is first used to produce rental income after that date.
- Certain testamentary trusts, deceased estates and special disability trusts will be excluded from the proposed 30% minimum tax on capital gains.
- An apportionment method will allow taxpayers to work out how much of a capital gain or loss arose before and after 1 July 2027. This means taxpayers will not necessarily need to obtain a valuation of the asset as at 1 July 2027.
- Specific rules will clarify how the CGT changes will apply to trusts, including attribution managed investment trusts (AMITs).
- Specific rules will ensure the changes apply correctly where a person is an Australian resident for only part of the period they own the relevant asset.
- The rules will ensure that certain CGT events do not trigger tax earlier than intended where capital gains have been deferred.
The draft legislation also provides definitions to clarify what can be considered a new residential dwelling for the negative gearing rules. For instance, a non-residential building that is acquired and converted into a residential dwelling can be treated as a new residential dwelling. A dwelling acquired within 24 months of its occupancy certificate being issued can also be treated as a new residential dwelling for the new owner.
It is important to note that these are draft measures. The legislation may change before the relevant Bills are introduced into Parliament.