EET election a ‘band-aid fix’ to trust tax reform issues

Hive Wise managing director Hripsime Demirdjian accused the government of repeatedly taking a reactive approach to legislative changes to its discretionary trust tax reforms.

“This could have been avoided with a proper consultation process with the industry,” she told Accountants Daily.

“Trusts in their nature are very complex structures. The initial proposal didn’t consider all the mechanical complexities that would be involved by rolling a discretionary trust into a fixed structure, how that affects stamp duty and CGT, and the domino effect that comes from that tax.”

The government announced the excluded election trust (EET) option in response to feedback that restructuring existing trusts may not always be practical or affordable. The trustee of a minimum tax trust that exists on 1 July 2028 may elect for the trust to be an EET, in which case the minimum 30 per cent tax that takes effect from 1 July 2028 does not apply.

The election can only be made in the first income year that the rules apply (2028–29 income year) only once, and cannot be made if the trustee opts for the rollover. The trustee must nominate specific beneficiaries and lock in fixed identical proportions for both income and capital distributions.

Demirdjian said the EET election presents a trade-off which needs to be considered carefully by accountants and their clients.

“While the option to make that election does provide some certainty from a tax perspective, it could create some constraints in the longer term around succession planning, changing family circumstances, and even future needs of beneficiaries because you have to fix the entitlements,” she said.

“Ultimately, this election in my view is a band-aid fix to the myriad tax problems that were presented in the original proposal.”

Unintentional consequences

Demirdjian said the trust tax reforms have not been considered from the perspective of small businesses, who she said would be targeted by this measure, whether or not that was the intention.

“The government has claimed that this reform is going to contribute towards making Australia’s tax system fairer and more sustainable but all of this is happening at the expense of small businesses.”

According to the Australian Bureau of Statistics, there were over 2.7 million actively trading small businesses operating on 30 June 2026, while small businesses with fewer than 20 employees accounted for 97 per cent of all actively trading businesses.

“When you put that into perspective, that’s a lot of families who are going to be negatively impacted by this minimum 30 per cent tax on discretionary trusts because many small businesses are structured with a family trust, whether they're trading through it or it’s a part of their shareholding structure,” Demirdjian said.

“I don’t see how it’s fair to place the burden on small businesses, especially in an already difficult economic landscape. I don’t think it’s a well-targeted measure at all.”

Niche exemptions

When the government recently introduced the discretionary trust tax draft legislation in parliament, Treasurer Jim Chalmers announced that 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.

He added that deceased estates and discretionary testamentary trusts established for genuine testamentary purposes will also be excluded.

All distributions from trusts to registered charities and deductible gift recipients (DGRs) are also exempt, along with distributions to other income tax‑exempt entities like sporting clubs “up to a reasonable cap”, the Treasurer said.

Demirdjian said these exemptions are “very niche”, and would not provide relief to the average small business owner who uses a discretionary trust to either operate their business, hold investments, or manage their family wealth in their group.

“For most of our clients, for example, discretionary trusts act as the shareholder of an operating company,” Demirdjian said.

“Often, we would see dividends flowing through the discretionary trust. But now, that conditional mechanism of extracting money out of a company would be targeted and is going to be completely changed.”

Clients face hefty bill

Demirdjian said her clients have struggled to keep pace with the onslaught of updates and changes. She warned that obtaining advice, changing their existing arrangements, and restructuring could be an expensive affair.

They could expect accounting, advisory, and legal costs as they would require advice from a lawyer who would need to review their trust deed.

“All those costs are going to add to a significant amount. It potentially would not have been incurred had this reform not been introduced or explored by the government,” Demirdjian concluded.

CPA Australia tax policy lead Jenny Wong told a Senate hearing last week that businesses could incur compliance costs of between $221 million and $595 million on top of spending up to $2.8 billion just to obtain professional advice on how the changes could impact them.

This is well above the $48 million compliance cost estimate by Treasury, Wong said.