# The 30% Minimum Tax on Discretionary Trusts: What It Means for SMSF Trust Investments
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Section: Newsletter
Published: 2026-09-23
Last modified: 2026-09-24
Summary: SMSF trust tax update: proposed 30% trust tax starts 1 July 2028 if legislated. See unit trust, NALI and LRBA bare trust risks.
Editorial note: Super Informed content is general information for Australian SMSF trustees. It is not personal financial advice, tax advice, or legal advice.
Author/editor: Sam Corrie, Founder & Editor, Super Informed, Adelaide SA
Editorial method: Primary-source review of ATO, ASIC, Treasury, legislation, regulator announcements, explanatory material, and official guidance where available.
Independence: Super Informed is an independent editorial project. It is not affiliated with, endorsed by, or written on behalf of any employer, bank, super fund, product issuer, adviser, accountant, or regulator.
Corrections: Corrections and clarifications can be sent to sam@superinformed.com.au. Material corrections are reflected in the article and updated date where appropriate.
Scope: General information only. Not personal financial advice, tax advice, or legal advice.
## Key Takeaways
- Complying superannuation entities, including SMSFs, are excluded directly from the proposed 30% minimum tax.
- The SMSF risk is indirect: a private unit trust, related-party unit trust or syndicate trust may need to satisfy the exposure draft's fixed trust definition.
- The proposed non-refundable credit may not preserve ordinary SMSF outcomes where the fund is taxed at 15% in accumulation phase or 0% in pension phase.
- The SMSF Association has asked Treasury to preserve the existing TR 2006/7 fixed entitlement approach under section 295-550 of the ITAA 1997.
- LRBA bare trust issues now mainly matter for existing grandfathered residential LRBAs and commercial property LRBAs.
- Trustees do not need to rush changes, but private trust deeds should be reviewed for income, capital, unit issue, unit redemption and deed variation discretions.
## Article Content
Treasury's exposure draft for a proposed 30% minimum tax on discretionary trusts is aimed at family trust income splitting, not self-managed super funds (SMSFs).
A complying SMSF is excluded directly from the proposed measure. The SMSF issue is indirect: a fund may invest through a trust, such as a private unit trust, a related-party unit trust, a property syndicate, or a bare trust used in a limited recourse borrowing arrangement (LRBA).
The SMSF Association's 18 September 2026 submission warned that the draft law's fixed trust concepts could unintentionally affect trust structures that SMSFs use for investment, even where the policy target is elsewhere.
This article explains the proposed measure, why the risk is indirect, and what trustees should monitor as the legislation develops. It is general information only and is not tax, legal or financial advice.
For the existing rules on managed funds and unit trusts, see the [SMSF Shares, ETFs and Managed Funds Guide](/smsf-guides/smsf-shares-etfs). For property borrowing structures and the 2026 residential borrowing changes, see the [SMSF Property Guide](/smsf-guides/smsf-property#section-lrba) and the [SMSF residential LRBA ban update](/newsletter/smsf-residential-property-borrowing-ban-2026).
Key Takeaways: SMSFs and the Proposed Trust Tax
- Complying superannuation entities, including SMSFs, are excluded directly from the proposed 30% minimum tax.
- The concern is indirect: a trust that an SMSF invests through may need to satisfy the exposure draft's fixed trust definition.
- The proposed non-refundable credit may not preserve ordinary SMSF outcomes where a fund is taxed at 15% in accumulation phase or 0% in pension phase.
- The SMSF Association has asked Treasury to preserve the existing TR 2006/7 fixed entitlement approach under section 295-550 of the *Income Tax Assessment Act 1997*.
- LRBA bare trust uncertainty now mainly matters for existing grandfathered residential LRBAs and commercial property LRBAs.
- Trustees with private unit trusts, 13.22C/13.22D related-party unit trusts, syndicate interests or LRBAs should monitor the final legislation rather than making rushed changes now.
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## What is the proposed 30% minimum tax?
The 2026-27 Federal Budget delivered on 12 May 2026 announced a proposed 30% minimum tax on discretionary trust income. Treasury released a consultation paper in July, then exposure draft legislation on 3 September 2026. Exposure draft consultation closed on 18 September 2026.
The proposed start date is 1 July 2028.
The policy target is income splitting through discretionary trusts. A family trust may distribute income across several beneficiaries so that each beneficiary is taxed at a lower marginal rate. The draft measure is designed to put a minimum tax floor under affected trust income.
| Date | Event | Trustee significance |
|---|---|---|
| 12 May 2026 | 2026-27 Budget announcement | Policy announced |
| 8 July 2026 | Consultation paper released, with consultation running 7-31 July | Treasury begins implementation consultation |
| 3 September 2026 | Exposure draft legislation released | Draft law available for comment |
| 18 September 2026 | Exposure draft consultation closed | Treasury begins reviewing submissions |
| 1 July 2028 | Proposed commencement | Start date if legislated in this form |
The draft law does not mean trustees should treat the measure as already enacted. The final bill could change.
## Why SMSFs are excluded but still need to watch trust structures
Treasury's 3 September 2026 exposure draft release says superannuation funds are among the trust types excluded from the proposed minimum tax. If your SMSF holds investments directly in the fund, the proposed discretionary trust minimum tax does not apply to the SMSF itself.
The issue arises when the SMSF invests through a separate trust.
A trust is a separate structure. If that trust is treated as a minimum tax trust under the final legislation, the trustee of that trust may pay tax before income is distributed to the SMSF.
That distinction is the heart of the SMSF concern:
- the SMSF may be excluded;
- the trust between the SMSF and the underlying asset may not be; and
- the tax outcome for the SMSF can still be affected if tax is paid upstream.
This is most relevant for funds that hold units in private trusts, related-party unit trusts or closely held property syndicates. It is less likely to matter for a fund that only holds listed shares, exchange traded funds (ETFs), cash, term deposits and property directly in the SMSF trustee's name.
Managed investment trusts and widely held trusts are also expected to be outside the proposed minimum tax where they fall within the fixed trust or widely held treatment described in the exposure draft materials. That means many ordinary managed fund holders are unlikely to be the main audience for this issue.
Mixed family groups need a separate check. If an SMSF co-invests in a unit trust alongside a family discretionary trust, the SMSF may be excluded directly while the family discretionary trust side may be directly in scope. The Treasury material also says expanded rollover relief will be available for three years from 1 July 2027 for taxpayers that want to restructure out of a discretionary trust. That relief is most relevant to the family group, not the SMSF itself.
## The fixed trust problem for SMSF investors
The exposure draft excludes fixed trusts, but the difficulty is how "fixed trust" is defined.
The draft would replace the existing fixed trust definition in section 272-65 of Schedule 2F to the *Income Tax Assessment Act 1936*. Under the draft approach, a trust can be fixed if beneficiaries have fixed entitlements to all income and capital, or if there are no material discretionary elements affecting beneficiaries' entitlements or rights. That second limb is designed to avoid catching commercial trusts that have administrative powers but no meaningful income-splitting discretion.
The uncertainty is that "material discretionary elements" is not defined exhaustively in the draft law. Treasury's explanatory material gives indicators and the draft also relies on ministerial instruments to deal with some trust types. The SMSF Association's submission argues those instruments should address anomalies, not carry the core definition.
SMSFs already deal with fixed entitlement concepts under existing tax rules. If trust income received by a complying SMSF is not supported by a fixed entitlement or arm's length terms, the non-arm's length income (NALI) rules can become relevant. That can produce a much harsher tax outcome than ordinary SMSF income tax.
The SMSF Association's specific concern is that the proposed minimum tax regime could disturb the existing SMSF fixed entitlement framework trustees and advisers have relied on for about 20 years. Its submission asked Treasury to preserve the approach in Taxation Ruling TR 2006/7 for "fixed entitlement" under section 295-550 of the *Income Tax Assessment Act 1997*.
| Test | Purpose | Main risk if failed |
|---|---|---|
| Existing SMSF fixed entitlement / NALI analysis | Determines whether trust income received by the SMSF is taxed ordinarily or potentially as NALI under section 295-550 | SMSF income may be taxed at the highest marginal rate, currently 45% |
| Proposed fixed trust definition for the minimum tax | Determines whether the trust is outside the proposed minimum tax regime | Trust may pay 30% tax before distributing income |
A trust could be treated one way for existing SMSF tax purposes and another way under the proposed minimum tax rules. That is why stakeholders are asking Treasury to align the concepts or provide explicit protection.
## How trust-level tax could affect SMSF income
For SMSFs with unit trust investments, the practical issue is not just legal classification. It is the tax paid before money reaches the fund.
The Budget and draft material use a non-refundable credit mechanism. Proposed section 101AF gives non-corporate beneficiaries a non-refundable 30% offset for tax paid by the trustee, while corporate beneficiaries do not receive that offset. The important unresolved SMSF question is whether that mechanism preserves superannuation tax outcomes in practice.
For a pension-phase SMSF, a non-refundable credit may be of little or no value because the fund's tax liability on exempt current pension income (ECPI) may already be nil. For an accumulation-phase SMSF, a credit may only offset the fund's 15% tax liability, not refund the difference between 30% trust-level tax and the ordinary SMSF rate.
| Example: $10,000 trust income | Trust-level tax | Amount reaching SMSF | Fund-level tax / credit outcome | Practical outcome |
|---|---:|---:|---|---|
| Pension phase under ordinary current treatment | $0 | $10,000 | $0 if ECPI applies | $10,000 reaches the fund |
| Pension phase if trust is caught and credit is non-refundable | $3,000 | $7,000 | $0 if ECPI applies; credit may not be usable | $7,000 reaches the fund |
| Accumulation phase under ordinary current treatment | $0 | $10,000 | $1,500 at 15% | $8,500 after fund tax |
| Accumulation phase if trust is caught and credit only offsets 15% SMSF tax | $3,000 | $7,000 | Assuming the fund is assessed on the grossed-up $10,000, $1,500 fund tax is offset by the $3,000 credit and the unused $1,500 is lost | $7,000 after trust-level tax |
This example is deliberately simplified. It shows why the offset mechanism matters more than the headline exclusion of SMSFs. The final law needs to state clearly whether complying super fund beneficiaries receive an offset that preserves the ordinary 15% accumulation or 0% pension-phase outcome.
## LRBA bare trusts and the draft law
An LRBA usually requires a separate holding trust, often described as a bare trust. The holding trustee holds legal title to the asset while the SMSF has the beneficial interest and makes the loan repayments.
Treasury's 3 September 2026 release lists bare trusts among trust types expected to be excluded from the proposed minimum tax. The SMSF concern is more precise: the exposure draft does not separately carve out every LRBA holding trust in the primary law, so trustees need the final law and explanatory material to make the fixed-trust treatment clear.
This matters because the bare trust is not optional in a compliant LRBA structure. If the SMSF borrows under section 67A of the *Superannuation Industry (Supervision) Act 1993*, the asset is typically held separately until the borrowing is repaid.
The practical trustee position has not changed, but the LRBA context has. From 10 August 2026, SMSFs cannot enter new LRBAs to buy residential property; existing residential LRBAs are grandfathered and commercial property LRBAs are unaffected. The bare trust concern now mainly applies to existing grandfathered residential LRBAs and commercial property LRBAs.
The ATO's LRBA change guidance and our [SMSF residential borrowing ban update](/newsletter/smsf-residential-property-borrowing-ban-2026) explain the residential-property transition rules. The proposed trust minimum tax is a policy item to monitor, not a reason to unwind an otherwise compliant LRBA.
## Could NALI and the minimum tax overlap?
The SMSF Association's 18 September 2026 submission also raised the possibility that existing NALI rules and the proposed minimum tax could interact poorly, including through tax stacking if the same income is exposed to more than one integrity regime.
NALI is already a severe outcome. If trust income is non-arm's length income, it can be taxed at the highest marginal rate in the SMSF. If a trust-level minimum tax also applied to the same underlying income without relief, the combined effect could be punitive.
That is not the ordinary expected case, and the final law may prevent double counting. But the interaction should be resolved expressly rather than left for trustees, accountants and auditors to infer later.
## Which SMSF trust structures should be monitored?
The structures most worth monitoring are the ones where the SMSF does not hold the underlying investment directly.
| Structure | Common SMSF use | Why it matters |
|---|---|---|
| Private unit trust | Co-investing in property or unlisted assets | The trust deed may need to satisfy the final fixed trust definition |
| Related-party 13.22C or 13.22D unit trust | Holding business real property or family group investments through an ungeared trust | Existing in-house asset, arm's length and fixed entitlement rules already require care |
| Closely held property syndicate | Pooling capital with a small investor group | Trust control and distribution provisions may need review |
| LRBA bare trust | Holding legal title while an SMSF loan remains on foot | Stakeholders want clearer exclusion in the primary law |
| Managed investment trust or widely held trust | Ordinary managed fund or unlisted property fund exposure | Treasury's 3 September release lists managed investment trusts and widely held trusts among excluded trust types |
The trust deed matters. A trust can be a unit trust in name but still fail a fixed trust test if the deed gives the trustee material discretion over income, capital, unit issue, unit redemption, class rights or deed variation.
## What trustees should do now
No urgent trustee action is required solely because the exposure draft exists. The measure is not yet law and does not start until 1 July 2028 if enacted as proposed.
Trustees with trust investments should still put it on the review list. Practical steps include:
1. Identify whether the SMSF holds units or interests in any private trust, related-party trust, property syndicate or LRBA holding trust.
2. Keep trust deeds, unit registers, distribution statements and trustee resolutions together for adviser review.
3. Check whether the deed gives the trustee discretions over income or capital distributions, unit issue, unit redemption, unit classes, or deed variation powers.
4. Ask the fund's accountant or SMSF specialist whether existing fixed entitlement and NALI analysis is documented, including the section 295-550 and TR 2006/7 position.
5. Wait for the final bill before restructuring, unless there is a separate existing compliance issue.
For most SMSFs holding only direct listed assets, ETFs, cash, term deposits and directly owned property, this proposed trust measure is unlikely to change day-to-day administration.
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## Frequently Asked Questions
### Does the proposed 30% minimum tax apply directly to SMSFs?
No. The exposure draft excludes complying superannuation entities directly. The issue is whether a separate trust through which an SMSF invests could be caught.
### Is the 30% minimum tax on discretionary trusts law yet?
No. As at 24 September 2026, the measure was exposure draft legislation. Consultation closed on 18 September 2026 and the proposed start date is 1 July 2028.
### Could my SMSF's unit trust income be affected?
Potentially, if the trust itself is treated as a minimum tax trust under the final law. The SMSF may still be excluded directly, but tax could be paid at the trust level before income reaches the fund.
### Are unit trusts the same as discretionary trusts?
No. A unit trust usually distributes income by reference to units, while a discretionary trust gives the trustee discretion about distributions. However, the actual deed matters. A trust can be a unit trust in name and still fail a fixed trust test if the trustee has material discretions over income, capital, unit issue, unit redemption or deed variation.
### Are LRBA bare trusts excluded?
Treasury's exposure draft material lists bare trusts among excluded trust types, but SMSF stakeholders have asked for clearer treatment of LRBA holding trusts in the primary legislation.
### What should trustees ask their accountant?
If the SMSF invests through a private trust, related-party unit trust or property syndicate, ask whether the trust deed supports fixed entitlement treatment and whether any proposed minimum tax exposure should be monitored once the final bill is released.