Treasury's exposure draft legislation, released 3 September 2026, adds a new opt-out to the 30% minimum tax on discretionary trusts due to start 1 July 2028. For property investors holding real estate in a family trust, it avoids one set of costs but creates another: a distribution pattern that is expensive to break once locked in.
What Labor proposed, and why it mattered to property investors
On 12 May 2026, as part of the 2026-27 Federal Budget, the government announced a 30% minimum tax on discretionary trusts from 1 July 2028, according to the Australian Taxation Office (ATO). A discretionary trust is a structure where a trustee decides each year how much income and capital each beneficiary gets, rather than beneficiaries holding a fixed share. It is why many property investors use one: rental income and capital gains can be split across family members on different tax rates, and property can sit in the trust across generations rather than in one person's name.
The 30% tax applies at the trustee level, and non-corporate beneficiaries can claim a non-refundable tax offset for tax the trustee already paid, according to the ATO. The bigger issue is for "bucket companies": corporate beneficiaries commonly used to retain trust profits at a lower rate. A company doesn't get that offset, so profits routed to a bucket company are effectively taxed twice.
A worked example published by tax law firm Sladen Legal, based directly on Treasury's own fact sheet wording, put the combined trust-and-company tax on $100 of trust income at $60, a 60% effective rate, before any dividend is paid to a shareholder. Once that $40 remaining is paid out as a franked dividend and the shareholder's own top-up tax is added, the total tax across all three levels reaches close to 70%.
Sladen Legal noted that an earlier, lower estimate of 51% circulating in early industry commentary rested on a misreading of the fact sheet; the actual drafting does not reduce the amount a bucket company is assessed on.
Treasury said the measure was designed to align trust income with wages, arguing families who use discretionary trusts have consistently paid less tax than comparable families who don't. The scale of that gap, and how many trusts and businesses are actually affected, is set out further down.
The backdown: an election that avoids the tax completely
Treasury's exposure draft, released 3 September 2026, added a new election under proposed Division 6F of the tax law, which the draft material itself refers to as an Excluded Election Trust, or EET, according to Sladen Legal.
A discretionary trust that exists on 1 July 2028 can nominate specific beneficiaries and lock in the fixed percentage of income and capital each one receives every year, with the election itself required to be made within the 2028-29 income year.
While the trust sticks to those percentages, the 30% minimum tax does not apply, and distributions are instead taxed at each beneficiary's ordinary marginal rate.
The nominated percentages must add up to 100% of both income and capital, and each beneficiary's income share must match their capital share, according to Sladen Legal. There is no cap on the number of beneficiaries, and eligible companies and some trusts can be nominated, but partnerships and superannuation funds cannot.
The cost is permanence. Once locked in, the nomination generally cannot change except on the death of a nominated beneficiary or a qualifying relationship breakdown between two nominated beneficiaries, according to Sladen Legal. Revocation is not limited to bad distributions, either: a nominated company being wound up or deregistered, or a nominated trust vesting, can end the election automatically, through events outside the trustee's control.
Distribute outside the nominated percentages, or trigger one of those events, and the election ends: beneficiaries are treated as though they were never entitled to that year's income, and the trustee is taxed on the entire amount, not just the mismatched portion, at the top marginal rate plus the Medicare levy, a combined 47%, under section 99A of the tax law.
The trust then falls into the 30% minimum tax regime for every year afterwards. A trustee can voluntarily revoke the election once, but it cannot be remade.
The problem tax lawyers say the draft doesn't solve: adding a child
The gap in that permanence rule is what has drawn the loudest criticism. Sladen Legal's analysis of the actual provision states plainly that the nomination "does not accommodate the birth of children, incapacity, insolvency, changing commercial circumstances, changes in tax residence, new family branches, changed asset use or intergenerational succession as independent grounds for variation."
A family that locks in its distribution pattern in the 2028-29 income year cannot later add a newborn child or grandchild to that pattern without counting as a distribution outside the nomination, which triggers the 47% penalty rate for that year.
The federal Opposition and sections of the tax profession labelled this a "birth tax" in press commentary through September 2026. Sladen Legal's own submission to Treasury argued the draft needs a broader set of variation events, including birth or adoption, and safeguards such as a correction period before automatic revocation applies.
None of that has been added to the draft as it currently stands. Consultation on the exposure draft closes 18 September 2026, and Treasury has flagged further tranches of administrative and integrity legislation to come, so this gap may still be addressed before the rules are finalised.
For a family trust holding investment property across two or three generations, this is not a hypothetical. Electing into the EET regime in 2028 effectively fixes the family tree at that point in time.
The alternative: restructuring, and its own set of traps
Trustees who would rather not fix their distribution pattern can instead move assets out of the discretionary trust altogether, into a company or fixed trust, under a three-year rollover available from 1 July 2027 to 30 June 2030. Done correctly, it avoids triggering immediate income tax or capital gains tax (CGT), according to the ATO and specialist legal analysis of the exposure draft by Sladen Legal.
Three things temper how attractive this looks in practice. First, all non-excluded assets must go to a single transferee entity. A trust holding several investment properties cannot split them between a company for one branch of the family and a fixed trust for another; everything moves to one recipient. Second, the rollover only covers federal income tax and CGT.
State stamp duty and land tax still apply in most cases, and for a family transferring several properties, that can be a bigger cost than the tax the restructure was meant to avoid.
Third, the entity receiving the assets must stay free of "material discretionary elements" for four years after the transfer, or the relief is clawed back retrospectively, according to Sladen Legal's reading of the draft provisions.
Separately, the Commissioner has an extended four-year window from the date of assessment to amend a return specifically in connection with rollover eligibility. Restructuring in 2028 does not mean the decision is finished in 2028.
There is also a timing trap specific to property-holding trusts weighing both options. The rollover and the EET election are mutually exclusive: choosing one rules out the other, permanently. Because a trustee can choose the rollover from 1 July 2027, a full year before the EET election window opens on 1 July 2028, it is possible to commit to a restructure before the alternative even becomes available to compare it against.
Who is excluded, and the scale of the change
The exposure draft carves out a broader range of structures than the original May 2026 announcement. Fixed trusts under a new, broader legal definition, widely held trusts including managed investment trusts, genuine testamentary trusts, and trusts distributing to charities or deductible gift recipients all sit outside the regime. Primary production income and complying superannuation funds are also excluded, according to the ATO.
Treasury's own figures suggest the regime is narrower in practice than the headline 30% rate implies.
What this means for property investors
If your investment properties sit inside a discretionary trust, the 2028 start date is further away than it feels, but the decision above is not small, and none of it is settled law yet.
There is no reason to restructure or elect into anything before the rules are final. There is good reason to start modelling all three paths against your own trust deed and beneficiary list now, particularly if grandchildren are likely before 2028, and to be wary of locking in a rollover choice before the EET option is even available to compare it against. Get advice specific to your structure and the state your property sits in before the legislation locks in, rather than after.
Sources
Tax reform: introducing a minimum tax on discretionary trusts, Australian Taxation Office, Minimum tax on discretionary trusts, exposure draft legislation, Australian Treasury consultation hub, The Minimum Tax on Discretionary Trusts: Bucket companies are worse than you think, Sladen Legal, Tax on trusts: the EET election, relief from the minimum tax, but at what cost?, Sladen Legal, Tax on trusts: roll-over relief for discretionary trusts, a three-year window with sharp edges, Sladen Legal
