Treasury has released exposure draft legislation for the proposed 30% minimum tax on discretionary trusts. Consultation closes on 18 September 2026.
The legislation also proposes an alternative electable regime. A trustee may nominate the beneficiaries who are to receive the income and capital of the trust, and their respective shares. If the election continues, proposed s 102UYD(2) provides that the trustee “must confer present entitlements to shares of the income and capital of the trust in accordance with the EET nomination”.
The nomination is intended to continue indefinitely and can generally be varied only following the death of a nominated beneficiary or a relationship breakdown. Yet the Explanatory Materials say that the nomination “does not restrict the trustee’s discretion” and that the trustee continues to have “unrestricted capacity” to determine who is presently entitled.
This creates some unusual questions about present entitlement, trustee discretion and the nature of the interests created by the new regime.
Come prepared to discuss the following:
- The $100 entitlement and the $70 fund. A trust has $100 of net income and appoints all of it to a corporate beneficiary. The trustee is liable for $30 of minimum tax. The company remains assessed under s 97 on $100 and, because it is a body corporate, receives no offset under proposed s 101AF. Does payment of the trustee’s $30 liability reduce or discharge the company’s $100 entitlement? If not, the company can call for $100 from a fund containing only $70. What legal event gets us from $100 to $70?
- Does the trustee still have a discretion? A trustee ordinarily must exercise a discretionary power upon real and genuine consideration of the objects of the trust. If the trustee has already nominated the beneficiaries and fixed their shares of income and capital indefinitely into the future, what discretion remains to be exercised each year? Can that be reconciled with Owies v JJE Nominees Pty Ltd [2022] VSCA 142? What work can the statement in the Explanatory Materials that the trustee retains an “unrestricted capacity” to decide who is presently entitled do against the statutory requirement that the trustee “must” confer entitlements in accordance with the nomination?
- What interest does the election create? What, if any, interest does a beneficiary acquire when the EET nomination is made? Is the beneficiary merely an object of the trust with an expectation that the trustee will later exercise its powers in a prescribed way, or does the nomination itself create or alter a beneficial interest in the income, capital or assets of the trust? Is the juridical position different when the trustee later confers the annual present entitlement required by s 102UYD(2)? If the beneficiary’s interest has changed, is that sufficient to constitute a change in beneficial ownership, declaration of trust, creation or transfer of an interest, or other dutiable dealing under the relevant State legislation? Does the answer differ according to the nature and location of the trust property?
Required Reading:
Treasury consultation: Minimum tax on discretionary trusts – exposure draft legislation
In particular:
- proposed ss 101AA–101AG;
- proposed ss 102UYB and 102UYD–102UYH;
- proposed s 272-65;
- Explanatory Materials concerning the electable regime, particularly [1.18]–[1.21] and [1.63]–[1.66]; and
- Owies v JJE Nominees Pty Ltd [2022] VSCA 142.
Discussion led by Adrian Cartland.