Minimum Tax On Discretionary Trusts: Definitional Challenges Would Broaden Impact

A new proposed minimum tax on discretionary trusts, aimed at preventing income-splitting, could have unintended consequences for many other types of trust arrangements if the federal government does not appropriately limit the scope of that minimum tax. For example, property and infrastructure groups with multi-layered structures may fall under proposed definitions of ‘discretionary trust’. Trustees should be aware of these proposed rules and plan accordingly.

Key takeaways for decision-makers

• Treasury has proposed a 30% minimum tax on discretionary trusts, effective from 1 July 2028. Its commentary focusses on deterring income-splitting, which is the practice of allocating taxable income to beneficiaries with lower tax rates. This suggests a measure targeted at discretionary trusts that operate in the context of close groups of individuals, which usually involves distinct features relating to allocation of taxable income by a trustee across that group (typically a family group).