Exposure draft legislation for the 30% minimum tax on trusts and other Budget reforms for innovation and investment
This month, Treasury has released exposure draft legislation for a range of measures that were announced as part of the 2026-27 Federal Budget.
This includes exposure draft legislation containing details of the 30% minimum tax for discretionary trusts that is proposed to apply from 1 July 2028. The draft legislation includes roll-over relief for clients to restructure out of a discretionary trust, available for three years from 1 July 2027. The draft legislation also provides that discretionary trusts will have the option to make an election nominating certain eligible beneficiaries to receive a fixed percentage of income and capital distributions each year, as an alternative way to opt out of the minimum tax regime.
Treasury has also issued exposure draft legislation on the proposed FBT changes for electric vehicles, changes to the research and development tax incentive, a new innovative business CGT concession and amendments to the tax incentives for venture capital schemes.
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Inside this month, Ann Dai (Tax Adviser), Michael Carruthers (Tax Director), and Amy Yan (Associate Tax Director) bring you:
Draft legislation for minimum tax on discretionary trusts
Treasury has released exposure draft legislation in connection with the 30% minimum tax for discretionary trusts that is proposed to apply from 1 July 2028.
The draft legislation provides detail on:
- How the minimum tax will work
- Excluded types of trusts and income
- A new definition of fixed trust
- How income tax-exempt entities will be treated
- Roll-over relief that can help restructure out of a discretionary trust
- A new electable regime to nominate beneficiaries who will receive fixed percentages of income and capital distributions
- Treatment of excess franking credits.
The exposure draft provides more detail on the application of a limited form of roll-over relief that would be available for three years from 1 July 2027. The roll-over can be used to transfer assets from a discretionary trust to a different structure which doesn’t have any material discretionary elements.
The draft legislation also proposes an electable regime where trustees of a discretionary trust in existence at 1 July 2028 will be able to make an ‘excluded election trust election’ (EET election) to make distributions in fixed percentages to certain nominated beneficiaries. If a valid EET election is made and distributions are made in accordance with that election, then the 30% minimum tax will not apply to the trust. If the trustee departs from the election when making distributions then the EET election is revoked, the trustee will be subject to tax on the full net income of the trust at penalty rates for that year and the 30% minimum tax will apply to subsequent years.
The draft legislation indicates that where a trust that is subject to the minimum tax rate has excess franking credits for a particular year, these are refundable to the trustee.
It is important to remember that the legislation is in draft form and Treasury has been seeking feedback from stakeholders as part of a consultation process. As a result, it is possible that there will be further amendments before the legislation is introduced to Parliament.
In addition, in Treasury’s media release, it has announced that the Government is planning to legislate on the 2018 Budget measure which brings existing UPEs into the scope of Division 7A, which would basically reverse the High Court’s decision in Bendel. However, this is yet to be confirmed and await further details.
Research and Development tax incentive
Treasury has released exposure draft legislation relating to proposed reforms to the research and development tax incentive (R&DTI) from 1 July 2028.
The reforms propose to:
- Increase offsets for eligible core R&D activities and remove the eligibility of supporting R&D activities
- Reduce the intensity threshold for the non-refundable offset to 1.5%
- Increase the turnover threshold for the refundable offset to $50 million
- Increase the minimum expenditure threshold to $50,000
- Increase the maximum expenditure threshold to $200 million
- Limit refundability to firms up to 10 years of age, with an extension for up to 15 years for eligible firms undertaking R&D activities related to therapeutic goods (e.g. biotechnology and medical technology)
Super for sportspeople, performers, film makers and related activities
The ATO has updated its website guidance on superannuation guarantee (SG) obligations for payments to sportspeople, performers, film makers and individuals involved in related activities.
The SG system can apply when payments are made to someone who is engaged as an employee under the ordinary meaning of the term. However, the SG rules also contain an expanded definition of employee. This can capture payments made to someone who is engaged wholly or principally for their labour (even if they are a genuine independent contractor). It can also capture individuals who are paid for certain activities, including individuals who perform or present, or who participate in the performance or presentation of, any music, play, dance, entertainment, sport, display or promotional activity or any similar activity. The rules also capture payments to individuals who provide services in connection with any of these activities.
The ATO confirms that payments to social media influencers, guest speakers at events, live streamers are generally caught. Payments to fitness, pilates and yoga instructors can also trigger SG obligations if they physically demonstrate the relevant movements.
That is, payments to these individuals are subject to SG regardless of whether they are a genuine independent contractor, have an ABN, are merely engaged in the activity as a hobby or are only engaged on a one-off basis. The main exception to this is where the performance is of a private or domestic nature.
The ATO’s updated guide in this area confirms that the payer doesn’t generally need to comply with SG obligations if the payment is being made to a partnership, trust or company.
The updated guide also explains how to deal with SG obligations in situations where payments are made to a group of performers as individuals, how to determine the portion of a payment that is subject to SG and how to deal with scenarios where payments are made through intermediaries.
Payments from super
The ATO has updated its website guidance on several superannuation tax rates and thresholds which apply from 1 July 2026.
The low rate cap amount has increased to $260,000 from 1 July 2026. The low rate cap limits the amount of the taxable component of a super lump sum that can receive a lower or nil tax rate and applies to individuals who have reached preservation age but are under 60. The cap is a lifetime limit, reduced by amounts previously counted towards the low rate threshold. Following changes to the family law framework, the low rate cap no longer applies to family law arrangements from December 2024.
The untaxed plan cap amount continues to limit the concessional tax treatment of super benefits containing an untaxed element. The cap applies separately to each super plan from which a member receives lump sum benefits and is relevant in determining whether an excess untaxed roll-over amount arises. The amount is indexed in $5,000 increments based on AWOTE, with the new indexed amount generally applying each February.
The ATO has also reiterated the rules applying to minimum annual payments for superannuation income streams. The minimum payment requirements for account-based pensions, allocated pensions and annuities, and market-linked pensions and annuities returned to normal from the 2013–14 income year following temporary reductions in earlier years. A further 50% reduction applied for the 2019–20 to 2022–23 financial years, but this reduction has not been extended beyond 2022–23.
Superannuation and annuity providers calculate the required minimum annual payment as at 1 July each year, based on the member’s account balance. For pensions commencing part-way through a financial year, the minimum payment is calculated proportionally based on the account balance at commencement.
Practitioners should also consider the updated super lump sum tax rates and Departing Australia superannuation payment (DASP) tax rates when advising clients on superannuation withdrawals and rollovers. In limited circumstances, a DASP held as unclaimed super money may be rolled over where a former temporary resident has subsequently returned to Australia as a permanent resident; however, the amount remains classified as a DASP and is taxed at the applicable DASP rates.
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