Key Highlights

  • CPA Australia wants the existing 47% family trust election penalty scrapped if the new tax proceeds.
  • Discretionary trusts would face a proposed 30% minimum tax.
  • An example presented to senators produced an effective tax rate of 75–77% through layered structures.
  • The bills have passed the House but still require Senate approval.

CPA Australia has used the Senate inquiry into Labor's trust tax bills to target a 47% penalty that sits largely out of public view. With the Senate Economics Legislation Committee due to report tomorrow, Friday 13 November, the accounting body wants the family trust election penalty removed if the proposed 30% minimum tax on discretionary trusts goes ahead. For families whose trusts already rely on that election, the outcome could shape their tax position from July 2028.

What CPA Australia told the Senate inquiry

The committee held public hearings in Canberra on 5 and 6 November into Treasury Laws Amendment (Tax Reform No. 3) and the Minimum Tax on Discretionary Trusts Bill.

CPA Australia told the inquiry it wants the 47% family trust election penalty removed if the new rules start.

The request came alongside broader criticism of the package's cost. Jenny Wong, the organisation's tax policy lead, called Treasury's estimate of $48 million a year in ongoing compliance costs a "gross underestimation".

Wong put one-off advice costs at $2 billion to $2.8 billion, and ongoing costs at $221 million to $595 million a year. She said Treasury's figures price advice at about $91 an hour.

How the existing family trust election penalty works

The family trust election is not new. It has been part of Australian tax law for decades.

In general terms, a trust makes the election to nominate an individual as the test person, which defines a "family group". The election can make it easier for the trust to pass the trust loss rules and for beneficiaries to access franking credits.

The trade-off is an integrity rule. Broadly, if the trust distributes income or Capital to someone outside the family group, family trust distribution tax applies to that amount. The tax is levied at the top marginal rate plus the Medicare levy, which currently comes to 47%.

Elections are generally difficult to revoke, so the penalty can follow a trust for years after the original decision was made.

Where the new 47% sits in the trust tax bill

The bill adds a second 47% exposure. Under the proposed regime, now a bill rather than law, the Trustee of a discretionary trust would pay a 30% minimum tax on all taxable income, with no threshold.

The Explanatory Memorandum illustrates the tax using a trust with just $30,000 of income. If a trust's fixed-entitlement election ends, that year's Net Income would be taxed at 47%.

Advisers describe three paths from 1 July 2028: pay the minimum tax, restructure, or elect fixed distributions.

For trusts that already carry a family trust election, this means two separate 47% rules could apply. One is the existing penalty for distributions outside the family group. The other is the proposed charge if a fixed-entitlement election ends. CPA Australia wants the older one removed if the new regime begins.

Why the profession says layered rates are the bigger problem

CPA Australia's request sits within a wider concern about overlapping taxes.

Susan Franks of Chartered Accountants ANZ gave senators an example in which a discretionary trust earns $100 and pays 30%. That income is then distributed through a fixed trust to a top-rate individual, adding about $47 of tax. Because the fixed trust has no tax left to offset, the effective rate reaches 75–77%.

The Tax Institute has made a similar point. In its 5 November statement, it estimated combined tax of up to 60% on income retained by a company, about 70–77% once paid as a Dividend to a top-rate shareholder, and up to 77% where the offset is lost through an interposed fixed trust.

The beneficiary offset is non-refundable, so beneficiaries with low average tax rates can lose part of it. The National Tax and Accountants' Association has calculated that a beneficiary needs about $229,320 of Taxable Income to use the full offset.

The IPA's Tony Greco put the question bluntly to Treasury: "Tell me what the mischief is."

Hypothetical example: how the two 47% rules compare with the 30% minimum

Hypothetical example: a family trust with a family trust election earns $120,000 of net income in a year after the minimum tax starts.

If the 30% minimum tax applies in the ordinary way, the trustee pays $36,000 (30% of $120,000). Beneficiaries then receive an offset, subject to the non-refundable limits described above.

If instead the trust had a fixed-entitlement election that ended that year, the bill would tax the year's net income at 47%. That is $56,400 (47% of $120,000), or $20,400 more than under the minimum tax.

Separately, under existing law, if the same trust distributed $20,000 to a relative outside its nominated family group, family trust distribution tax of $9,400 (47% of $20,000) could apply to that distribution.

This example is simplified and ignores offsets, timing and other rules. It shows how quickly top-rate penalties can outweigh the headline 30% rate.

What to watch: the Senate vote and key dates

Nothing in the minimum tax regime is law yet. The House passed the bills on Thursday 29 October, and the government is reportedly targeting Senate passage in the third week of November. Because the Coalition opposes the bill, Labor needs Greens support. No deal had been reported as of today.

Treasury's Impact Analysis puts one-off implementation at $939 million plus $48 million a year in ongoing costs, excluding state stamp duties. Treasury expects the tax to raise $4.5 billion a year by 2029–30.

- 13 November 2026: the Senate Economics Legislation Committee is due to report. Watch whether it addresses the family trust election penalty, the non-refundable offset or the 47% fixed-entitlement rule.

- Third week of November: the reported target for Senate passage, subject to Greens negotiations and any amendments.

- December 2026: MYEFO may update the Revenue estimates for the package.

- 1 July 2027: rollover relief for restructures is scheduled to open, running to 30 June 2030.

- 1 July 2028: the minimum tax on discretionary trusts is scheduled to start.

Trustees whose trusts hold a family trust election may wish to confirm the details of that election, including the test individual and the family group it defines, so they understand their position whatever the Senate decides. Each structure is different, and the final rules may differ from the bill.