New Family Trust Tax Rules from 1 July 2028: Can You Avoid the 30% Minimum Tax Without Restructuring?

From 1 July 2028, significant changes are proposed to the way discretionary family trusts are taxed in Australia, including the introduction of a minimum 30% tax rate on certain trust income and capital gains.

For families who have been using discretionary trusts to hold investment properties, operate businesses or manage family wealth, these changes could have a significant impact on their existing tax planning strategies.

However, on 14 October 2026, the Government introduced the Treasury Laws Amendment (Tax Reform No. 3) Bill 2026, which includes a new option known as the Excluded Election Trust (EET) election.

Under the proposed legislation, eligible existing discretionary trusts may be able to avoid the new minimum tax regime without transferring their assets, restructuring their ownership or triggering unnecessary capital gains tax and stamp duty.

While this may sound like welcome news for family trust owners, there is a catch. To qualify, trustees must agree to distribute income and certain capital gains to nominated beneficiaries in fixed percentages. There are also strict rules around which beneficiaries can be nominated, particularly when a family trust uses a bucket company.

In this article, we explain how the EET election is intended to work, which family trusts and bucket companies may qualify, and what existing trust owners should consider before the proposed changes take effect on 1 July 2028.

What Is an Excluded Election Trust (EET)?

Under the proposed tax reforms, discretionary family trusts will generally be subject to a minimum 30% tax rate on certain income and capital gains from 1 July 2028.

Traditionally, one of the main advantages of a discretionary family trust has been the flexibility to distribute income among eligible beneficiaries based on their financial circumstances and tax positions. For example, a trustee might distribute more income to a family member earning a lower salary in one financial year and change the distribution in the following year.

The proposed minimum tax rules could reduce some of these tax planning advantages.

To provide an alternative for existing family trusts, the Government has introduced the Excluded Election Trust (EET) election.

The EET election would allow an eligible discretionary trust to remain outside the proposed minimum tax regime without transferring its existing assets or changing its ownership structure.

However, to qualify, the trustee must agree to distribute trust income and certain capital gains to nominated beneficiaries in fixed percentages each year.

How Does the EET Election Work?

Let’s say a family trust owns two investment properties and a share portfolio. The trustee currently has the flexibility to distribute income between the husband, wife and a bucket company based on their tax circumstances each financial year.

Under the proposed EET election, the trustee could nominate the following fixed distribution percentages:

• Husband – 40%
• Wife – 30%
• Bucket company – 30%

Once the election is made, the trustee must generally follow these percentages every financial year, regardless of changes in the beneficiaries’ personal income or tax circumstances.

For example, if the trust earns $100,000 in distributable income, the husband would receive $40,000, the wife $30,000 and the bucket company $30,000.

The trustee cannot simply change these percentages the following year because one beneficiary has moved into a higher tax bracket or another beneficiary has stopped working.

The benefit is that the trust may continue holding its existing investment properties, shares and other assets without transferring them into a different structure, potentially avoiding significant capital gains tax, stamp duty and restructuring costs.

The trade-off is that the trustee effectively gives up much of the distribution flexibility that makes discretionary family trusts attractive in the first place.

Which Family Trusts Are Eligible for the EET Election Under the Proposed Legislation?

First announced in the 2026 Federal Budget, the proposed EET legislation offers an alternative for existing family trusts. However, this option is available only to qualifying trusts that exist on 1 July 2028. Family trusts established after this date will not qualify.

For family trusts operating on a standard financial year, the trustee must make the election during the 2028–29 financial year. The ATO must be notified by the earlier of the trust’s tax return lodgment due date or its actual lodgment date.

To qualify, the trustee must nominate eligible beneficiaries and allocate fixed percentage entitlements totalling 100%. These percentages must apply consistently to trust income and certain capital gains. Generally, nominated beneficiaries must already be eligible to benefit under the trust deed on 1 July 2028.

Certain entities, including partnerships, complying superannuation funds and bucket companies that do not satisfy the proposed eligibility requirements, cannot be nominated.

Importantly, the EET election is a one-time opportunity. If the trustee misses the election deadline or subsequently revokes the election, it cannot elect again. Failure to follow the nominated entitlements may also trigger automatic revocation, although the proposed legislation provides limited exceptions and a Commissioner’s discretion in certain circumstances.

Trustees should therefore carefully consider their long-term family, business and investment circumstances before committing to fixed distribution percentages.

Can You Nominate a Bucket Company Under the Proposed EET Legislation?

Many Australian family trusts use a corporate beneficiary, commonly known as a bucket company, to manage tax on trust distributions. Under the proposed EET legislation, trustees may still nominate a bucket company, but not every company will qualify.

To be nominated, the bucket company must be an eligible company, meaning there must be no material discretionary elements affecting its shareholders’ rights or interests.

Where Could Existing Bucket Companies Fall Short?

In simple terms, the concern is whether the company’s governing rules allow directors to favour one shareholder over another when distributing profits.

• Multiple share classes: Companies with Class A and Class B shares that allow discretionary dividend payments between shareholders may not qualify.
• Discretionary company constitutions: If a husband and wife each own 50% of the ordinary shares, but the constitution allows directors to pay all dividends to one spouse, the company may fail the eligibility test.
• ASIC replaceable rules: Even companies with ordinary shares may be affected if they rely on the replaceable rules under the Corporations Act 2001, which can permit unequal dividend payments.

Why does this matter? A bucket company that fails the eligibility requirements cannot be nominated under the EET election. This could prevent a family trust from using its existing corporate beneficiary as part of its fixed distribution arrangements.

Family trust owners should therefore review their bucket company’s constitution, share structure and shareholder rights before making an EET election.

What Happens if Another Family Trust Owns Your Bucket Company?

It is common for a bucket company’s shares to be held by another discretionary family trust rather than by individual family members.

Under the proposed EET legislation, this arrangement does not automatically disqualify the bucket company.

How Does the Shareholder Test Work?

The proposed eligibility test focuses on whether there are material discretionary elements affecting the bucket company’s shareholders’ rights or interests, rather than looking through a shareholder trust to examine how it distributes income.

For example, Family Trust A nominates ABC Pty Ltd as its bucket company, while 100% of ABC Pty Ltd’s ordinary shares are held by the trustee of Family Trust B.

Even though Family Trust B has discretion to distribute income among its beneficiaries, ABC Pty Ltd may still qualify as an eligible company, provided its own shareholder rights satisfy the proposed requirements.

The Ownership Continuity Trap

While the structure is permissible, the proposed EET rules impose strict ownership continuity conditions:

• If an existing shareholder ceases to hold shares in the bucket company, the EET election may be automatically revoked (subject to limited exceptions such as death or relationship breakdowns).
• Trustee & Restructure Complications: Even a routine change of trustee or internal restructure that alters legal title to the company’s shares can create severe technical complications.

Family trust owners should therefore consider both the bucket company’s shareholder rights and the long-term legal stability of its ownership structure before making an EET election.

Can You Change Beneficiaries or Distribution Percentages Later?

First introduced in the 2026 Federal Budget framework and formalized in the Treasury Laws Amendment (Tax Reform No. 3) Bill 2026, the primary trade-off of an EET election is the permanent loss of annual tax flexibility.

The Fixed Nomination Lock-In Once an EET election is made, the nominated beneficiaries and their fixed distribution percentages are generally locked in:

• No Discretionary Adjustments: Trustees cannot adjust distributions simply because a family member retires, changes tax brackets, or no longer needs financial support.
• Example: If a husband and wife are each nominated to receive 50% of the trust income, the trustee cannot shift distributions to a 20%/80% split in a subsequent year to optimize personal tax outcomes.

Limited Statutory Exceptions Under the proposed EET legislation, variation is permitted only in narrow, specified circumstances:

• The death of a nominated beneficiary.
• A formal relationship breakdown governed by court orders or binding financial agreements under family law.

Trust Deed Powers vs. Tax Compliance While a discretionary trust deed may still grant the trustee legal power to distribute unevenly, exercising that discretionary power inconsistently with the official EET nomination will trigger a breach. This causes the election to be automatically revoked, pushing the trust into the default 30% trustee minimum tax regime.

Family trust owners must therefore evaluate whether fixed percentages remain viable over a multi-year horizon as children reach adulthood, retirement approaches, or wealth objectives change.

What Happens if You Breach the EET Rules?

One of the biggest risks of making an EET election is the potentially severe tax consequences if the trustee fails to comply with the nominated distribution arrangements.

1. Automatic Revocation & Immediate Section 99A Penalty 

If a trustee distributes income or capital gains inconsistently with nominated percentages—or fails to pay or apply entitled trust income to beneficiaries by the required timeframe—the EET election is automatically revoked.

The immediate tax consequences are severe:

• Present Entitlement Voided: Beneficiaries are treated as having never been presently entitled to the trust’s net income for that financial year.
• Top Marginal Rate Assessment: The trustee is assessed on the entire net income of the family trust under Section 99A of the ITAA 1936 at the top marginal rate (45% plus Medicare levy).

2. Permanent Loss of EET Status 

Once an EET election is revoked due to a breach, it cannot be made again. In all subsequent financial years, the trust is permanently relegated to the default 30% trustee minimum tax regime.

3. Relief Provisions & Limited Commissioner Discretion 

The proposed legislation provides limited carve-outs, such as trust vesting, winding up, or specific family law relationship breakdowns. Additionally, the Commissioner of Taxation is granted discretionary power to disregard certain minor entitlement or payment failures where automatic revocation would be manifestly unreasonable.

The Bottom Line for Trustees 

Under the proposed rules, even a minor administrative blunder or poorly drafted distribution resolution can trigger catastrophic tax penalties. Discretionary family trust owners and tax advisers will need strict annual oversight to ensure compliance before making an EET election.

EET Election vs Minimum Trust Tax vs Restructuring: Which Option Makes Sense?

Under the proposed legislation, existing discretionary family trusts will generally have three options to consider before the new minimum tax rules take effect on 1 July 2028.

Option 1 – Keep the Existing Discretionary Trust: Continue operating the trust with flexible distributions but accept the proposed 30% minimum tax on income and capital gains to which the new rules apply.

Option 2 – Make the EET Election: Retain the existing trust structure and assets while avoiding the minimum tax regime, provided the trustee follows the nominated fixed distribution percentages and other eligibility requirements.

Option 3 – Restructure the Trust: Consider transferring assets into a different ownership structure, potentially using the proposed transitional restructure roll-over where eligible. However, stamp duty, ongoing costs and commercial implications must also be considered.

No Universal Solution – There is no single option that will suit every family. For example, a trust holding several investment properties with significant unrealised capital gains may benefit from avoiding an asset transfer, while another family may place greater value on maintaining flexibility over future distributions.

The right decision requires comparing the long-term tax consequences, restructuring costs and flexibility of each option, rather than focusing solely on the proposed 30% minimum tax rate.

Final Thoughts: Is the EET Election Right for Your Family Trust?

The proposed EET election could provide valuable opportunities for existing family trusts to avoid the 30% minimum tax without transferring assets or restructuring their investments. However, the restrictions on beneficiaries, fixed distributions and bucket company ownership mean it will not suit every family.

With significant changes proposed from 1 July 2028, now is a good time to review your existing trust arrangements and understand your options.

At Investax Group, we specialize in helping property investors, business owners, and high-net-worth families navigate complex tax reforms and structure their wealth securely. If you are unsure how the proposed EET rules or minimum trust tax regime will affect your family trust or bucket company, contact our advisory team today to schedule a strategic review.

Frequently Asked Questions (FAQs)

1. When do the proposed EET rules and minimum trust tax take effect?

Announced in the 2026 Federal Budget, the proposed 30% minimum trust tax and EET election framework are scheduled to commence on 1 July 2028. Transitional restructuring roll-over relief is proposed to be available from 1 July 2027, subject to eligibility.

2. Can a new family trust established after 1 July 2028 make an EET election?

No. Under the proposed EET legislation, the election is strictly limited to qualifying discretionary trusts that exist prior to 1 July 2028. Any new discretionary family trusts established after this date will automatically fall under the default 30% minimum tax regime without the ability to elect EET status.

3. Will an EET election prevent me from using a bucket company?

No, but your bucket company must qualify as an “eligible company”. Under the proposed legislation, the corporate beneficiary cannot have discretionary share arrangements, such as multi-class dividend rights or flexible directors’ discretions under the Corporations Act 2001. Constitutions must be audited and updated prior to making an election.

4. Is the EET election permanent, or can a trustee revoke it?

An EET election is intended to be a one-time choice. While a trustee can choose to voluntarily revoke the election to return to the 30% minimum trust tax regime, the election cannot be remade once revoked. Additionally, breaching fixed distribution percentages causes an automatic revocation, subjecting the trust to top-rate Section 99A tax for that year and the minimum tax regime in all future years.

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