Key Highlights

  • The proposed beneficiary offset is non-refundable, leaving some credits unused.
  • The simplified example raises combined tax on $90,000 from $8,040 to $27,000.
  • The proposed minimum tax has no tax-free threshold at the trust level.
  • The minimum tax would start on 1 July 2028 if enacted in its current form.

Most of the argument over Labor's 30 per cent minimum tax on discretionary trusts has centred on small businesses and the wealthy. A quieter group says it has been overlooked: self-funded retirees who receive modest trust income and pay little tax today. With a Senate committee due to report tomorrow, an example raised in Parliament suggests one retired couple's tax bill could more than triple, largely because of how the proposed offset works.

The example raised in Parliament

Liberal MP Tony Pasin told Parliament on 26 October of a retired farming couple with $90,000 of Lease income whose tax could rise from about $8,000 to about $27,000.

Fair Trust Reform, an advocacy group founded by a 70-year-old self-funded retiree, has called for changes to the proposed minimum tax.

Even so, the example illustrates a design feature that tax practitioners have flagged: the minimum tax has no threshold, and the Credit beneficiaries receive for it cannot be refunded.

How the proposed design works

Under the Treasury Laws Amendment (Tax Reform No. 3) Bill and the accompanying rates bill, which have passed the House but are not yet law, the Trustee of a discretionary trust would pay 30 per cent on all of the trust's taxable income. There is no tax-free threshold at the trust level.

Beneficiaries who receive distributions would get a tax offset for the tax already paid by the trustee. However, the offset is non-refundable. A beneficiary whose own tax on the distribution is lower than the offset loses the unused part.

That is why people on low average tax rates are most exposed. A high-income beneficiary may be able to use the whole credit, while a retiree with modest income may not.

The National Tax and Accountants' Association calculates that a beneficiary needs about $229,320 of Taxable Income to use the full offset.

The Explanatory Memorandum also includes an example applying the tax to a trust with just $30,000 of income, underlining that small trusts are within scope.

Hypothetical example: a couple sharing $90,000

Hypothetical example: a trust earns $90,000 of Net Income and distributes it equally to a retired couple, so each receives $45,000. This simplified illustration ignores offsets such as the low income tax offset and the seniors and pensioners tax offset, the Medicare levy and any other income.

Under the current system, each partner would pay tax at their own marginal rates. On the 2026–27 resident rates, income up to $18,200 is tax-free and income from $18,201 to $45,000 is taxed at 15 per cent. Each partner's tax would be $26,800 multiplied by 15 per cent, or $4,020. Together, that is $8,040.

Under the proposed minimum tax, the trustee would first pay 30 per cent of $90,000, or $27,000. Each partner would receive an offset of $13,500, but could use only $4,020 of it against their own tax. The unused $9,480 each would be lost because the offset is non-refundable.

The couple's combined tax would therefore be about $27,000 rather than $8,040, an increase of $18,960. The result is broadly consistent with the figures Pasin cited, although his example may rest on different assumptions. Put another way, the couple's average tax rate on the trust income would rise from about 8.9 per cent to 30 per cent.

In practice, real outcomes would depend on the final legislation and regulations, any exemptions that apply, the beneficiaries' other income and their eligibility for offsets.

What the retiree advocates want

Fair Trust Reform has set out three proposals. None has been adopted by the government.

- Exempt the first $150,000 of net income across all of a family's trusts, with the amount indexed. - Make unused offsets refundable, or allow them to be carried forward to later years. - Have Treasury publish data on affected beneficiaries by income band and age.

Another feature affects trusts whose fixed-entitlement election ends: that year's net income would be taxed at 47 per cent.

The government's case and the Senate numbers

The government argues the measure targets Wealth concentration. Treasury's Laura Berger-Thomson told the Senate inquiry that "the top-earning 10 per cent of individuals have 90 per cent of total trust wealth". She also said part of the rationale was to prevent further growth in these structures.

Treasury projects the tax will raise about $4.5 billion a year by 2029–30. Treasurer Jim Chalmers has said fewer than 10 per cent of businesses would be affected.

Supporters also point to the other side of the fairness ledger. The ACTU, urging passage, said a nurse on an average full-time salary of $90,000 could pay up to $10,000 more tax than a household receiving the same income through a trust.

Neither the government nor Treasury has published a breakdown of affected beneficiaries by age, which is one reason retiree advocates say their circumstances have not been tested.

The House passed the trust bills, together with Tax Reform No. 4, on 29 October. Labor needs the Greens in the Senate because the Coalition opposes the trust bill.

Greens leader David Shoebridge has said he supports a 30 per cent minimum tax but will not back concessions that undermine its purpose. That leaves open whether a low-income or retiree Carve-Out could attract Greens support.

As introduced, rollover relief for restructures would run from 1 July 2027 to 30 June 2030, and the minimum tax would start on 1 July 2028.

What to watch

Friday 13 November 2026: the Senate Economics Legislation Committee is due to report. Watch for any recommendation on a threshold, refundable offsets or distributional data.

Third week of November: the government's reported target for Senate passage, though not officially confirmed.

December: the Mid-Year Economic and Fiscal Outlook, which could reflect any amendments.

1 July 2027: rollover relief would open for trusts that restructure.

1 July 2028: the minimum tax would begin, if passed in its current form.