Chartered Accountants Australia and New Zealand (CA ANZ) has lodged a submission on the Treasury consultation paper ‘Minimum tax on discretionary trusts’ which contains the design of the 2026-27 Australian Federal Budget announcement to implement a 30% minimum tax on discretionary trusts.

CA ANZ acknowledges the government’s aim to improve the fairness and sustainability of the tax system by reducing the ability of discretionary trusts to split income. However, there are several concerns with the proposed design in the consultation paper which are outlined in the submission.

Key issues raised include:

• The proposal does not address underlying problems with the existing tax law provisions regarding trusts. Nor does it address historical issues, such as family trust elections (FTEs) which are generating family trust distribution tax (FTDT) bills that threaten the existence of many small businesses that have made an innocuous mistake.
• The design goes beyond reducing income splitting. It imposes double taxation on beneficiaries that are companies or discretionary trusts, forcing groups to restructure away from discretionary trusts. This could require established businesses to spend significant time and resources on costly restructures, diverting attention from productive activities.
• There are alternative ways to achieve the government’s objective to address income splitting which should be explored including:
  • The creation of a ‘t’ account’ for a corporate beneficiary in receipt of a trust distribution subject to the 30% minimum trust distribution tax, similar to a franking account when a company receives a franked dividend. The ‘t’ amounts, which are not refundable to a shareholder, must be used by the company when paying a dividend before using ordinary franking credits
  • An election for the discretionary trust to be treated as a fixed trust/company
  • The minimum 30% trust distribution tax levied on the individual beneficiary rather than the trustee.
• The proposed requirement to transfer all, or essentially all of the trust’s assets to a new entity under the proposed rollover mechanism may be problematic commercially as businesses may want to leave their high value assets in the trust for asset protection purposes. Also, consideration should be given to extending the time in which the rollover relief is available in view of the number of discretionary trusts that conduct business activities in Australia and the shortage of tax practitioners.
• Given the proposal’s double tax impact on unpaid present entitlements (UPEs) to corporate beneficiaries, to overlay the Division 7A complying loan requirements on the same UPE amount will add to the cost and compliance burden on the trustee and corporate beneficiary. In the interests of simplicity and reducing red tape, we recommend the government does not amend Division 7A to treat UPEs as loans in response to the High Court’s decision in Commissioner of Taxation v Bendel [2026] HCA 18.
• Consider excluding all not-for-profit organisations, both tax exempt and taxable, from the minimum tax regime. An exclusion for distributions to tax exempt entities would avoid a tax exempt entity from needing to interact with the ATO to claim a refundable tax offset.

CA ANZ’s submission encourages the government to consider these issues and explore more effective, less disruptive solutions to achieve its policy objectives.