During July, the Government released a consultation paper on the 30% minimum tax on trust distributions proposed to commence from 1 July 2028, reigniting debate on the topic. For legislated changes, the new financial year is a start date for several new tax measures, including Division 296 superannuation tax and the loss carry back rules.
 

LEGISLATION UPDATE—TAX REFORM 

30% minimum tax on trust distributions

Treasury has released a consultation paper on the 30% minimum tax on trust distributions proposed to apply from 1 July 2028. Submissions closed on 31 July 2026.

The paper proposes a number of exclusions from the tax, including for fixed and widely-held trusts, complying super funds, deceased estates, testamentary trusts, special disability and vulnerable-minor trusts, charitable and exempt trusts, certain foreign-resident distributions and primary production income.

• For testamentary trusts, the exclusion would be limited to income derived from assets originating in the deceased estate, with Treasury also considering limiting the beneficiaries of new trusts to individuals and tax-exempt entities.
• Submissions were sought on an appropriate definition of a fixed trust.

How the minimum tax may operate

The trustee would pay the 30% minimum tax. Individual beneficiaries would then include their trust share in assessable income and receive a credit for the trustee tax:

• A beneficiary with a marginal rate above 30% would then pay any top-up tax.
• No refund of the tax would arise where the beneficiary’s marginal rate is below 30%.

Treasury is considering how the trustee tax should be recognised for corporate beneficiaries, with the example in the paper imposing double tax on distributions to a company.

The paper proposes that excess franking credits attached to trust distributions would be carried forward, with Treasury is seeking submission on whether is should be refunded. This may be relevant, for example, where a trust borrows to acquire shares and interest deductions reduce the net income from franked dividends.

Key point: If a corporate beneficiary receives no credit for the trustee tax, double tax will arise with the total tax cost potentially approaching 70% on ultimate distribution to shareholders.

Bendel and Division 7A

The consultation paper seeks views on implementing the previously announced proposal to bring unpaid present entitlements within Division 7A following the High Court’s Bendel decision.

Transitional restructuring relief

A three-year rollover period is proposed to apply from 1 July 2027 to facilitate the restructuring of assets away from discretionary trusts into companies, fixed trusts and direct ownership.

The proposed relief would use the existing ‘Small business restructure relief’ as a starting point, with the rollover broadened to:

• Not be limited to small businesses or to ‘genuine restructures’;
• Test continuity of economic ownership between structures with reference to a ‘family unit’; and
• Potentially cover investments as well as business assets.

Key point: The rollover is proposed for income-tax purposes only. State or Territory duty may still apply on transfers of real property and, in Queensland and Western Australia, certain business assets. This will make rollovers commercial impractical in many cases.

Our Submission

We have made a submission to Treasury proposing several practical solutions to the key issues identified, including the proposed double tax to corporate beneficiaries and the treatment of excess franking credits.

 CASE LAW UPDATE

Larmar & Anor v FCT —Personal services Income

The Federal Court has held that an accountant was assessable in his personal name on $30m in fees from property syndication activities over a number of income years. Mr Larmar contended that the income belonged to his family trust whilst the Court held that the evidence did not establish that the trust, rather than him personally, held the relevant contractual rights and obligations.

The commercial reality was that investors engaged Mr Larmar because of his personal reputation and expertise, and he performed the critical services. As such, even if the fees had been derived by the trust, they were predominantly generated by his personal efforts. The income was therefore attributable as personal services income as the trust did not satisfy a personal services business test.

Key point: Where personal services are provided via entities, contracts and operational conduct should support that the entity is deriving the income. Further consideration must then be given to whether net income should be paid or attributed to the relevant individual under the tax law.

TAX RULING UPDATE

Dynamic PAYG instalments

From 1 July 2027 taxpayers will be able to opt into an ATO-approved Dynamic PAYG instalment calculation embedded in accounting software. The model is intended to align instalments more closely with current business performance.

The ATO has issued draft PCG 2026/D3 confirming that it will generally not allocate compliance resources to collecting general interest charge where a taxpayer uses the approved Dynamic PAYG calculation method as intended.

MEASURES COMMENCING FROM 1 JULY 2026

Personal income tax

• From 1 July 2026, the tax rate applying to taxable income between $18,201 and $45,000 reduces from 16% to 15%. The maximum annual benefit is $268 for taxpayers with taxable income of at least $45,000.

• The new $1,00 standard deduction applies from the 2027 income year. An Australian-resident individual deriving assessable labour income may claim up to $1,000 without substantiation. This deduction is reduced by actual deductions claimed for most work-related expenses other than income protection and trade or professional association membership fees.

Superannuation

• Division 296—The additional 15% and 10% tax on superannuation balances above $3m and $10m respectively commences from 1 July 2026.

• Payday Super— Superannuation payments made from 1 July 2026 will be applied to meet the new payday super obligations. Late payments of 2026 obligations will need to be made by lodging a SGG statement and paying the SG charge..  

Loss carry-back

• Eligible companies will be able to carry-back revenue losses incurred from the 2027 income year against tax liabilities for the previous two years, subject to franking account limitations.

• This legislation is yet to be passed.

CONTACT US

For further infomration on these updates, or for general assistance, please contact Jacci Mandersloot or Natalie Claughton