July 2026 Round Up | 30% minimum tax for trusts, more CGT and negative gearing changes, and a key Federal Court case on management fees

Consultation on proposed 30% minimum tax for trusts, more changes to the CGT and negative gearing rules and a Federal Court decision on who should be assessed on management fees

Treasury has released a consultation paper to seek feedback on key aspects of the proposed 30% minimum rate of tax on the income of discretionary trusts from 1 July 2028. While the consultation paper provides a clearer picture on how the Government intends for this measure to apply, many key details are still to be clarified.

Treasury has also released draft legislation on further changes to the CGT system and negative gearing, building on legislation that has already passed through Parliament. The new draft legislation seeks to address some technical and practical issues associated with the Budget measures.

In Larmar v Commissioner of Taxation [2026] FCA 826, the Federal Court held that management, success and brokerage fees from property syndicates were assessable to an individual rather than his related service trust. The Court found the individual was personally responsible for generating the income, despite administrative support being provided by the service trust.

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Inside this month, Ann Dai (Tax Adviser), Michael Carruthers (Tax Director), and Matthew Tse (Senior Tax Adviser) bring you:

Consultation on discretionary trusts reform

Treasury has released its consultation paper on the implementation of the minimum 30% tax on discretionary trusts, which was announced in the 2026-27 Federal Budget.

The measure proposes to apply a 30% minimum tax on discretionary trusts which will apply from 1 July 2028. However, trusts that choose to restructure can access expanded rollover relief for three years from 1 July 2027.

Treasury has been seeking feedback on key aspects of the proposed changes, including:

• Expanded rollover relief to support restructuring from discretionary trusts;
• How excess franking credits should be treated; and
• The ways to collect the minimum tax.

A number of trust types, including testamentary trusts, fixed trusts, superannuation funds, charitable trusts, deceased estates and trusts earning primary production income, are proposed to be excluded from the measure. Some types of income, such as certain income relating to vulnerable minors, will also be excluded.

Treasury is also proposing three years of rollover relief for businesses and other taxpayers that choose to restructure out of discretionary trust arrangements, but it isn’t clear yet exactly how this rollover will apply.

The consultation paper also considers how the new rules should interact with unpaid trust distributions owed to corporate beneficiaries following the High Court's decision in the Bendel case. The paper suggests that the Government is at least considering a change to the legislation in line with announcements made back in the 2018-19 Federal Budget. 

• Consultation on discretionary trusts reform implementation

• Minimum tax on discretionary trusts 

TPB guidance on the use of AI

The Tax Practitioners Board (TPB) has issued a Guidance Statement to help tax practitioners understand their obligations under the TASA Code in relation to the use of AI when providing tax agent services.

The TPB recognises that AI tools, when used appropriately, provide a significant opportunity to increase productivity and deliver efficiencies for tax practitioners, the public and Australia. However, tax practitioners are ultimately responsible for the tax agent services they provide to their clients.

The TPB has highlighted some key things to note in relation to the obligations under the Code.

In relation to competency:

• Tax practitioners remain responsible for the accuracy of all information and advice provided to clients, regardless of whether AI is used in the preparation or delivery of services.
• AI should be used as a support tool rather than a substitute for professional judgement. Practitioners must independently assess each client's circumstances and ensure advice meets the required standard of competence under the Code and the Determination.
• As AI systems can generate incorrect or fabricated information ("hallucinations"), their outputs should not be relied upon in place of a practitioner's tax knowledge, experience and expertise.
• AI-generated content should be reviewed and verified at each stage of the engagement. Practitioners should also implement documented processes for assessing, validating and, where necessary, challenging AI-generated outputs.

In relation to confidentiality:

• Practitioners should ensure they continue to meet their confidentiality obligations under Code item 6, which prohibits the disclosure of information relating to a client's affairs without the client's permission, unless disclosure is required by law.
• Before entering client information into AI platforms or other third-party tools, practitioners should obtain the client's informed consent where required. This includes clearly explaining how the information will be used, who it may be disclosed to, where it will be stored, and whether AI technologies will be involved in processing the client's data.
  
  
•  TPB(GS) 55/2026 The use of Artificial Intelligence and the Code of Professional Conduct 

Rental property schedules

The ATO is focusing on rental property deductions and reminding practitioners that property manager reports should be treated as a starting point only when preparing rental property schedules. This is because the expense classifications used for property management purposes may not reflect the correct tax treatment.

The ATO has identified a number of common issues, including:

• Capital expenditure (including initial repairs) being incorrectly claimed as an immediate deduction;
• Expenses being grouped too broadly to determine the appropriate tax treatment;
• Inconsistencies between expenses recorded when incurred and when they are paid; and
• Private expenses, such as costs relating to an owner's personal use of the property, being incorrectly claimed as rental deductions.

To reduce the risk of incorrect claims, the ATO recommends that practitioners:

• Obtain invoices or work descriptions where the nature of an expense is unclear;
• Seek additional evidence, including photographs, where invoice descriptions do not adequately reflect the work undertaken;
• Verify that invoices and supporting documentation relate to the relevant rental property rather than the client's private residence or another property;
• Ensure repairs, capital works and depreciating assets are correctly identified and treated for tax purposes; and
• Explain to clients why the tax treatment of expenses may differ from the classifications shown in property manager reports.

The ATO notes that this review process is particularly important where a rental property has recently been acquired or significant expenditure has been incurred. Taking these additional steps can improve the accuracy of rental property schedules, help clients understand the correct tax treatment of expenses, and reduce the risk of ATO review or audit arising from incorrect or overstated deductions.

•  Check property manager reports to reduce incorrect claims 

Div 296 changes for SMSFs

From 1 July 2026, Division 296 imposes an additional 15% tax on the proportion of earnings attributable to the part of an individual's total super balance (TSB) that exceeds the large super balance threshold (LSBT), which is $3 million for the 2026-27 income year.

The ATO has highlighted several key points for SMSF trustees and practitioners:

• SMSF annual reporting: From the 2026–27 income year, SMSFs will need to report each affected member's relevant super earnings in the SMSF Annual Return. A member may be impacted where the value of their interest in the fund exceeds the LSBT.
• CGT adjustment election: SMSFs can elect to apply the Division 296 CGT adjustment to all CGT assets held by the fund on 30 June 2026. This election applies fund-wide, cannot be revoked once made, and is available even if no member exceeds the LSBT at that date. The election must be made by the due date for lodging the 2026–27 SMSF Annual Return.
• Assessments and payment: The ATO expects to issue Division 296 assessments for the 2026–27 income year during the second half of the 2027–28 financial year. Individuals may choose to release money from their super fund to meet their Division 296 tax liability.

The ATO is also developing Law Companion Rulings to provide further guidance on calculating the relevant super earnings of members who fall within the scope of Division 296. 

• Is your SMSF ready for the new tax on large super balances?