Ensure certainty before passing discretionary trust changes: FAAA

The government’s discretionary trusts tax exposure draft package needs Improved certainty, flexibility, and proportionality, the Financial Advice Association Australia (FAAA) has said in its submission, emphasising that although it acknowledges some of FAAA’s previous points, it still holds significant concerns about the government’s plan.

In its 18 September submission on the government's proposed minimum tax on discretionary trusts, the FAAA said the government’s exposure draft package needs further refinement before the legislation’s enacted.

One change the FAAA proposed is to amend the requirement to consider structural decisions before the full regime is settled, introducing uncertainty.

“Taxpayers and their advisers are being asked to evaluate the costs, benefits and risks of each [alternative] pathway without a complete understanding of how the broader framework will operate in practice. This is likely to increase complexity, require additional professional advice, and result in significant unnecessary implementation and compliance costs,” Sarah Abood, chief executive at FAAA, said in the submission.

“For the many trustees who will practically need to restructure, the transitional roll-over does nothing to address the State and Territory stamp duty consequences, which had been identified as a critical cost driver in our 31 July 2026 submission,” Abood said.

With trusts used for a variety of non-tax purposes, including asset protection and succession planning, FAAA recommended that the government complete a minimum tax framework before the legislation’s commencement and defer implementation until trustees and tax advisers have sufficient certainty about how the regime operates.

“This would reduce unnecessary complexity and compliance and advice costs, while helping taxpayers make informed decisions about whether restructuring, electing into the EET regime or remaining within the minimum tax framework is appropriate,” Abood said.

”The practical implications of the reforms … extend beyond taxation outcomes, making it important that taxpayers have sufficient certainty regarding the operation of the regime before incurring the costs associated with restructuring, implementation or ongoing compliance.”

In addition, the submission called for examples and a longer transition period to ensure trustees and their tax agents can make the right decision.

“Before taxpayers are required to make pathway elections or restructuring decisions, Treasury and the ATO should publish comprehensive worked examples and practical guidance covering the key decision points, integrity provisions and common real-world scenarios arising under the minimum tax, EET and roll-over regimes,” Abood said.

“A full five-year transition period from 1 July 2027 to 1 July 2032 would provide greater certainty, reduce the risk of rushed and potentially irreversible structural decisions, and better accommodate legitimate delays outside the parties’ control.”

FAAA said greater flexibility, clearer guidance, and more proportionate outcomes are needed to improve the discretionary trust tax regime’s operation while retaining the government’s integrity objectives.