The Australian government has introduced the Treasury Laws Amendment (Tax Reform No. 3) Bill 2026 and the Income Tax Rates Amendment (Minimum Tax on Discretionary Trusts) Bill 2026, aiming to reform discretionary trusts and introduce a minimum tax on them starting 1 July 2028.
Dr Jim Chalmers, Australia’s treasurer, states that the reforms seek to respond to calls for reform over the past five decades and introduce a more aligned tax treatment between asset income and wage/salary income.
The reforms will not impact more than 90 percent of small businesses in any given year, and over 95 percent of individuals are not trust income recipients. The number of trusts has more than doubled over the past two decades.
Exemptions from the minimum tax on discretionary trusts include certain income relating to vulnerable minors, discretionary trusts created for genuine testamentary purposes, distributions from trusts to registered charities and deductible gift recipients (DGRs), and distributions to sporting clubs and other income tax-exempt entities (up to a reasonable limit).
Key Components of the Minimum Tax
The reforms implement the key components of the minimum tax, including a new definition of fixed trusts, as part of the minimum tax on discretionary trusts. Chalmers clarified that fixed, charitable, special disability trusts, and superannuation funds are exempt from the new minimum tax on discretionary trusts.
Starting on 1 July 2027, small businesses and other discretionary trust users can avail of rollover relief if they are interested in restructuring or can make an election for tax purposes to access a minimum tax exemption while they continue making distributions to pre-nominated beneficiaries in accordance with an upfront nomination.
Transitional Relief and Tax Arrangements
Chalmers notes that the reforms also aim to implement the next tranche of legislation for the reforms to negative gearing and capital gains tax, clarify the CGT for various trust structures, and offer transitional relief for excess contributions in Payday Super’s first year.
The reforms preserve tax arrangements for affordable and public housing and other housing types, define a new residential dwelling, and identify exemptions from the limits on negative gearing for affordable and public housing, specialist disability accommodation, operators of retirement villages and residential aged care, and build-to-rent developments.
Chalmers stated that the reforms seek to implement ambitious tax reforms, make the tax system fairer and more sustainable for workers, businesses, and future generations, and fund income tax reductions for Australian workers.
The Australian government has already passed significant reforms to cut taxes for 13 million workers, support more Australians to get into the housing market, and deliver $3.8 billion in lower taxes for businesses and start-ups.
