Australian Government Offers Small Business Workaround for Trust Tax Stamp Duty Issue

Shivangi

Sep 7, 2026 3:44 PM IST

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Synopsis

The government offers small businesses a way to avoid a stamp duty bill created by its new minimum tax on discretionary trusts.

Key Highlights

• Draft legislation to implement a new 30% minimum tax on discretionary trusts from 1 July 2028 has been released by the Treasury.
• Stamp duty will apply on acquisitions after that date, but businesses can avoid a bill for having purchased land via a discretionary trust by applying to amend their business structure.
• The new tax is set to hit fewer than one-tenth of Australia’s 2.7 million active small businesses annually,
• The public consultation on the draft legislation is available until 18 September 2026.

On Thursday, the Australian Treasury released draft legislation for a 30% minimum tax on discretionary trusts, which was first flagged in the federal budget back in May. At the same time, the government offered to fix a second, unrelated cost problem that had unexpectedly arisen from its introduction of a new tax.

An income earned through a discretionary trust will be taxed at the trustee level at an effective minimum rate of 30 from July 1, 2028, much closer to the tax paid by an average worker. It is a change aimed at closing the loophole of discretionary trusts, which for many years have enabled owners to divide income with family members and companies, thereby paying lower overall tax. Treasury says in any one year, no more than 10 per cent of Australia’s 2.7 million active small businesses will be impacted although the government has previously estimated that between 350,000 and 400,000 trusts are involved.

The clear solution for business owners wanting to escape the new tax regime was to reorganise from a discretionary trust into either a company or a fixed trust that distributes its income in definite proportions as opposed to at the discretion of the trustee. Now, the feds had pledged rollover relief in the federal budget to assist this transition and paid for by deferring that capital gains tax through a restructure.

But this rollover relief did not extend to state and territory stamp duty (charged when property, including many financial assets and business interests, is transferred). Federal rollover relief has never applied to state stamp duty, and in consultation with state treasurers on this issue over the past 12 months, those officials have been unwilling even to consider waiving such a tax. So business owners were left weighing up either absorbing a legacy restructure, including accounting, legal and stamp duty costs; or paying capital gains tax and being forced into winding up their existing structures.

The Proposed Workaround

The draft legislation released Thursday proposes a way to get there. Rather than triggering a stamp duty event (in most states) by changing the nature of a discretionary trust to tax as a fixed trust or corporation, the trustee is able to sustain its existing structure and commit to providing fixed distributions to pre-defined beneficiaries.

In this structure, the trust itself continues to be discretionary in both name and structure but the trustee relinquishes any ability to change who may benefit from distributions. In return, the trust is released from minimum tax for the duration of this fixed arrangement. The election is not expected to trigger a stamp duty event in most states, with no property or ownership structure actually being changed.

According to the Treasury, this option is the alternative to rollover relief, not a substitute for it. Rollover relief will still apply for three years (from July 1, 2027) to businesses that actually want to convert to a company or another trust structure but businesses happy within the bounds of their existing structure can ignore the stamp duty problem with its corresponding restructuring issue altogether.

Exemptions and Other Changes

The draft legislation also affirms and expands upon a list of trusts that were never intended to be subject to the minimum tax. Charitable trusts supporting a charitable entity (other than if the recipient is controlled by private entities), special disability trusts, people with disabilities and wholly-owned companies deriving income from existing resources that are applied in providing remuneration for particular classes of disabled employees, superannuation funds, deceased estates without proper control over income, genuine testamentary trusts, income from affected primary production or otherwise vulnerable minors. The new definition of what a ‘fixed’ trust is will also exclude widely-held trusts, managed investment trusts, bare trusts and employee share trusts.

One gap highlighted during consultation has also been dealt with. Distributions from trusts to registered charities and deductible gift recipients will not be subject to the new tax at all, while distributions to other tax-exempt entities such as sporting clubs will only be subject to a cap which is being finalised. New minimum rate rules The new franking credit provisions will allow trustees to claim refunds on excess franking credits attached to income that is subject to the new minimum tax rates.

It has tied this announcement to its wider small business tax policy which includes a permanent $20,000 instant asset write-off and the reintroduction of loss carry-back, with more than & 3.8 billion worth of measures aimed at lowering taxes on businesses to promote investment and growth which passed parliament last August.

Mixed Reactions From Industry

Even if it does, not every industry group is convinced the workaround will aid many businesses. It has also been noted by some that business owners often use a discretionary trust structure because of their varying income year to year and shedding this flexibility in order to create fixed distributions may take away the major benefit of the structure for many.

There has been concern about timing too, with some critics arguing that imposing additional costs for financial and legal advice, valuations and stamp duty comes at a challenging time when corporate insolvency levels remain elevated.

The workaround is worth knowing about, and for discretionary trust business owners, this would not usually be the better option than restructure but there are always trade-offs. For example, locking in fixed distributions takes away the flexibility that is often the primary reason why a discretionary trust was established in the first place (for businesses with variable income). The answer to whether the fixed-distribution election a rollover-relief restructure or simply acquiescence to the new tax rate is best for each estate will be an individual matter, and it is certainly a discussion worth having with an accountant long before the tax kicks in (mid-2028)

The draft law is open to public consultation until September 18, 2026, which is a much shorter period than previously enjoyed by earlier stages of the process. Some further legislation will follow, giving the administrative and integrity details.

Source: Dynamic Business