Consultation a ‘tick-the-box’ exercise: Industry pokes holes in trust tax bill

Porters CA director and chartered accountant Simon Terry slammed the government for rushing the process from announcing the tax reform proposals in its May budget and releasing consultation papers to then releasing draft legislation and providing just over two weeks for consultation, and tabling the bill in Parliament soon after submissions closed.

“This has been rushed from the start,” Terry told Accountants Daily.

“The consultation felt like it was to tick a box, not a process that actively rethinks the issues the tax profession raised. I haven’t read through the latest bills and I don’t intend to do so. This whole process is frustrating. It’s somewhat pointless to follow the drafting and politics until we have actual outcomes. Everything has been rushed from the start.”

Terry said the bill has improved since the draft legislation was initially released, but cautioned that it is a work in progress with further key rules yet to be written.

“The ability to make fixed distribution elections is notionally appealing for short-term relief but with a cost of longer-term risks and issues,” he said.

Alongside these proposals, Terry said that over the last year, the Australian Taxation Office (ATO) has made family trust elections a key target, “potentially in cases where no harm was done”. While noting that this bill acknowledges the problem, he said it only offers relief to families who restructure.

“Tax reform is broader than a budget announcement and the legislation that follows,” Terry said.

“We would have liked to see those issues resolved for everyone.”

Terry said he is telling his clients to assess their circumstances but refrain from restructuring “until the dust settles”.

“I feel for those who are forced by circumstances to make decisions now on an uncertain future,” he said.

Treasurer Jim Chalmers recently introduced the Treasury Laws Amendment (Tax Reform No. 3) Bill 2026 and the Income Tax Rates Amendment (Minimum Tax on Discretionary Trusts) Bill 2026, which included implementing the core components of the minimum tax on discretionary trusts, including a new definition of fixed trusts.

Chalmers said fixed trusts, charitable trusts, special disability trusts and superannuation funds, as well as primary production income and certain income relating to vulnerable minors, will all be exempt from the minimum tax. Deceased estates and discretionary testamentary trusts established for genuine testamentary purposes will also be excluded.

The bill includes a new requirement for trustees to notify the commissioner of an event that automatically revokes an excluded election trust (EET) election.

Mismatch between bill and rationale of reform

The Tax Institute’s head of tax and legal, Julie Abdalla, said the broader definition of fixed trust means that more commercial trusts could qualify as fixed trusts and therefore fall outside the proposed minimum tax regime.

However, she said companies that receive trust income still cannot claim any credit for the 30 per cent tax paid by the trustee. Referring to one worked example in the Tax Institute’s submission, she said combined tax reaches 60 per cent at company level and up to 77 per cent once that income is paid out as a dividend to a shareholder on the top marginal rate.

“A 30 per cent minimum tax should mean 30 per cent. However, family businesses that use a company beneficiary will bear the brunt of a tax liability well above that,” Abdalla said.

Abdalla expressed concerns that the bill has features that may catch people who were never the target of this measure. The minimum tax applies to any trust that is not specifically excluded, with no income threshold and no test of why the trust exists, she said.

“That sits uneasily with the stated policy rationale of addressing income splitting by high earners,” Abdalla told Accountants Daily.

Abdalla said the rushed and compressed consultation time frames is cause for worry and “has been the hallmark of the recent tax reform process”.

“Good tax reform should engage constructively with the profession and other stakeholders to minimise disruption and unintended consequences, and mitigate the need for ongoing tinkering to fix the inevitable errors and problems that arise from a rushed process,” Abdalla said.

“Certainty matters, and a 1 July 2028 start date gives some time to get this right. Rushing the design doesn’t deliver certainty. It tends to create more uncertainty later, through amendments, guidance and disputes.”

The Tax Institute said restructuring remains difficult, rollover relief is still limited to a single new entity, all assets must move, and trusts that are not family trusts depend on a ministerial determination to access it.

“The rollover only provides income tax relief, leaving stamp duty to the states and territories,” it said.

The Senate recently referred the Treasury Laws Amendment (Tax Reform No. 3) Bill 2026 and Income Tax Rates Amendment (Minimum Tax on Discretionary Trusts) Bill 2026 for an inquiry, with submissions closing on 29 October and the inquiry being held in November.

Abdalla said this presents an opportunity to resolve any outstanding issues before the bill passes.