Treasury has introduced the Treasury Laws Amendment (Tax Reform No. 3) Bill 2026 (Bill) and the related bills into the House of Representatives, to give effect to the 30% minimum tax regime for discretionary trusts announced in the 2026-27 Federal Budget.
The Bills are presently the subject of inquiry by the Senate Economics Legislation Committee, which has called for submissions from interested stakeholders and is scheduled to conduct a public hearing in November 2026. The introduction of the Bills follows the release of exposure draft legislation in September 2026.
This article focuses on the proposed new definition of a “fixed trust”.
The Bill would repeal and replace the existing “fixed entitlement” test with a broader, principles-based framework[1]. Under the proposed approach, the key inquiry is whether any “material discretionary elements” exist that are capable of significantly affecting a beneficiary’s entitlement or rights to trust income or capital. This represents a fundamental shift from the current rules and has the potential to significantly expand the range of trusts capable of qualifying as fixed trusts for income tax purposes.
Need to know:
- The Bill replaces the existing “fixed entitlement” test with a new, principles-based “fixed trust” test.[2]
- A trust is a fixed trust if beneficiaries have fixed entitlements to all income and capital, or if there are no material discretionary elements capable of significantly affecting beneficiaries’ entitlements or rights.
- Widely held trusts such as managed investment trusts (MITs) and attribution managed investment trusts (AMITs) are expected to meet the new fixed trust definition, but they are not expressly excluded.
- The practical focus shifts from asking whether beneficiaries have vested and indefeasible interests to assessing whether any discretionary powers are sufficiently material to affect beneficiaries’ substantive economic rights.
What is a minimum tax trust?
The Bill introduces the concept of a “minimum tax trust[3]”. A minimum tax trust is a trust estate that is none of the following at a particular time during a year of income:
- a fixed trust[4]
- a special disability trust, or a trust estate that was a special disability trust at an earlier time during the income year
- the trust estate of a deceased person
- a complying superannuation entity (within the meaning of the Income Tax Assessment Act 1997 (Cth) (ITAA 1997))
- an employee share trust (within the meaning of the ITAA 1997)
- an approved worker entitlement fund (within the meaning of the Fringe Benefits Tax Assessment Act 1986), or
- a trust estate of a specified kind that the Minister has determined, by legislative instrument, is not a minimum tax trust.
Importantly, the Bill confirms the expanded definition of a fixed trust by repealing the existing provision and substituting the broadened concept of a “fixed trust” discussed in the exposure draft[5].
What is a fixed trust under the Bill, and how does the new definition differ?
The existing provision in Schedule 2F of the ITAA 1936[6] provides that a trust is a fixed trust if persons have fixed entitlements to all of the income and capital of the trust. Under those rules, all beneficiaries generally require a vested and indefeasible interest in income or capital, a test that many commercial trusts struggle to satisfy because of amendment powers, defeasance provisions and trustee discretions.
Treasury has indicated that the new definition is intended to be more practical and commercially focused for the minimum tax regime. Under the Bill, a trust is a fixed trust if:
- beneficiaries have fixed entitlements to all income and capital, or
- there are no material discretionary elements capable of significantly affecting the entitlements or rights of the trust’s beneficiaries to the income or capital of the trust.
This is a broader and more flexible test than the traditional vested and indefeasible concept.
The existence of trustee, governance or administrative powers will not preclude a trust from being a fixed trust where those powers are merely ancillary or administrative in nature and cannot be exercised to materially affect, reduce or reallocate the value of beneficiaries’ fixed interests in the trust.
The Bill establishes both:
- conclusive rules (where specified Ministerial determinations apply), and
- indicative factors suggesting whether discretion exists.
When a trust is likely to be a fixed trust
The concept of a “material discretionary element” sits at the heart of the new test.
Matters suggesting there are no such material discretionary elements include where the beneficiaries have clearly defined specific and enforceable entitlements or rights:
- to all of the income and capital of the trust, or
- in relation to the governance of the trust to the extent relevant to protecting, enforcing or giving effect to the entitlements or rights of the beneficiaries to the income or capital of the trust
whether or not the entitlements or rights are subject to rules, so long as none of the rules are discretionary.
Any rules affecting those rights must operate mechanically rather than through discretion.
Importantly, if powers such as:
- varying rights,
- issuing new interests,
- redeeming interests,
- setting redemption prices,
- classifying receipts as income or capital, or
- dealing with administrative matters
cannot be exercised in a manner that significantly changes existing beneficiaries’ entitlements or affects the value of their interests, that is not suggestive of a material discretionary element.
If amendments to the trust deed are only possible:
- with beneficiary approval,
- by special resolution, or
- where amendments cannot materially prejudice beneficiaries’ income or capital rights,
that also indicates there is not a material discretionary element.
The above factors are commonly associated with unit trusts and widely held investment trusts, where rights are more akin to proprietary interests than discretionary benefits.
Role of Ministerial determinations
The Minister may issue legislative instruments specifying matters that:
- conclusively mean there is no problematic discretion,
- conclusively mean there is problematic discretion,
- merely suggest a trust is fixed, or
- merely suggest a trust is not fixed.
These determinations allow the government to provide certainty for particular trust structures without amending the legislation itself.
Expanding on “material discretionary elements”
The practical focus shifts from asking whether beneficiaries have vested and indefeasible interests to assessing whether any discretionary powers are sufficiently material to affect the substantive economic rights of beneficiaries of a trust.
Critically, the relevant provision lists a series of powers commonly found in trust deeds and unit trust constitutions – to vary entitlements, issue or redeem interests, set redemption prices, classify receipts as income or capital, or deal with administrative matters – and provides that none of these, on their own, amounts to a material discretionary element, provided they cannot be exercised to significantly vary existing beneficiaries’ entitlements or affect the value of their interests.[7]
The statutory test therefore asks not whether a discretion exists, but whether it is capable of materially disturbing the economic position of existing beneficiaries.
Similarly, a power to amend the trust instrument will not itself prevent fixed trust status under the relevant provision, provided it can only be exercised with beneficiary consent (by unanimous or majority approval, or special resolution), or in a way that cannot materially or significantly adversely affect beneficiaries’ entitlements or rights.[8]
This is a meaningful concession for widely held unit trusts, which commonly reserve a power for the responsible entity or trustee to amend the constitution unilaterally in limited circumstances (for example, to correct manifest errors or comply with regulatory change) without that power alone tipping the trust out of fixed trust status, so long as the power cannot be used to materially prejudice existing unitholders.
When a trust is likely not to be a fixed trust
The provisions infer that a trust will fail the relevant requirement where persons exercising powers under the trust can materially influence:[9]
- who receives income
- who receives capital
- the amount beneficiaries receive
- the value of beneficiaries’ interests
- the relative economic position of beneficiaries.
In other words, if trustees, managers, appointors or other controllers have meaningful discretion over the beneficiaries’ economic outcomes, that discretion points away from fixed trust status.
Fixed trusts beyond MITs and AMITs: a worked example
The meaning of “fixed trust” under the new test is expected to track the existing managed investment trust (MIT) and attribution managed investment trust (AMIT) regimes, since those vehicles are widely held, unit-based structures already designed around fixed proportional entitlements.
However, falling within the classification of MIT is no guarantee that the trust is a fixed trust and consideration needs to be given the general principles discussed above. An AMIT in contrast is deemed to be a fixed trust.[10]
A managed investment trust is, broadly, a widely held Australian resident unit trust registered (or required to be registered) as a managed investment scheme, or operated by a financial services licensee, that satisfies specific investor-number and widely-held tests.[11]
An AMIT is a MIT that has made a choice to apply the relevant attribution rules, under which each member’s share of trust components is attributed under the trust’s constitution rather than by reference to present entitlement under the ordinary trust taxation rules.[12]
The Bill’s fixed trust test, however, is not limited to, or defined by reference to, the MIT or AMIT regimes. The Explanatory Memorandum confirms that MITs and AMITs are “not ‘closely held’ trusts” and “would be expected to meet the definition of fixed trust”, but this is a consequence of their widely held, proportionate structure, not a precondition for fixed trust status. A fixed unit trust can therefore satisfy the new test even though it is closely held and falls well short of the investor-number or widely-held thresholds required to be a MIT or AMIT.
Example:
Property Unit Trust is a unit trust established to hold a single commercial property. It has three unitholders – two family investment vehicles and one individual investor – holding units in fixed proportions (50%, 30% and 20% respectively). Under its constitution, each unitholder’s entitlement to trust income and capital is strictly proportional to its unitholding, with no trustee discretion to vary that proportion or to redirect income or capital between unitholders. The trustee has a limited power to adjust unit redemption prices by reference to an independent valuation formula, and a power to amend the constitution only with unanimous unitholder consent.
Property Unit Trust is not a MIT, because it has only three unitholders and does not meet the widely-held or licensing requirements[13]; it is accordingly also not eligible to be an AMIT. Nonetheless, applying the new test, Property Unit Trust should qualify as a fixed trust as:
-
- its unitholders have clearly defined, specific and enforceable proportional entitlements to all income and capital,
- the redemption pricing power operates mechanically by reference to an objective formula rather than discretion, and
- the amendment power can only be exercised with unanimous unitholder consent.
None of Property Unit Trust’s powers are capable of significantly varying unitholders’ existing entitlements or the value of their interests, so there should be no material discretionary elements,[14] notwithstanding that Property Unit Trust sits entirely outside the MIT and AMIT regimes.
Action Required
In light of the proposed fixed trust definition, trustees and advisers should undertake a detailed review of existing unit trust deeds to identify provisions that could constitute a “material discretionary element” capable of significantly affecting a unitholder’s entitlement or rights to income or capital.
The focus should move away from the traditional vested and indefeasible interest analysis and towards whether any trustee, manager or other person has substantive powers that can alter the economic outcomes enjoyed by unitholders.
Where discretionary powers appear unnecessary from a commercial perspective, consider narrowing or removing them where possible (taking particular care in relation to resettlement issues for income tax and duty).
Where powers are retained, consider introducing objective constraints, unitholder approval requirements or other governance protections that reduce the likelihood that the powers would be regarded as “material discretionary elements”.
Practical steps include:
| Action Item | Comment |
| Review income and capital distribution provisions |
|
| Review powers to issue, redeem or convert units |
|
| Review powers to vary class rights |
|
| Review trustee discretions affecting economic entitlements |
|
| Review amendment powers |
|
| Review default beneficiary and vesting provisions |
|
| Review manager, responsible entity or related party powers |
|
The introduction of the Bill confirms the government’s intention to proceed with a fundamental shift in how trusts are classified for the purposes of the minimum tax regime. While the Bill must still pass both Houses of Parliament and its terms may yet change, trustees and beneficiaries of discretionary and unit trusts should act now and:
- review existing trust deeds against the new fixed trust definition,[15] paying particular attention to amendment powers, redemption rights and any discretions capable of significantly affecting beneficiaries’ entitlements
- consider whether closely held fixed unit trusts that are not MITs or AMITs may nonetheless satisfy the new fixed trust test, and whether any trust deed amendments are needed to remove or constrain problematic discretions.
If you have any queries about the minimum trust tax or wish to undertake a review of your current trust structures, please contact our Hamilton Locke Private or Tax team.
[1] Schedule 1, item 10, Treasury Laws Amendment (Tax Reform No. 3) Bill 2026, inserting new section 272-65 of Schedule 2F to the Income Tax Assessment Act 1936 (Cth) (ITAA 1936), replacing the existing “fixed entitlement” test.
[2] Section 272-65 of Schedule 2F of the ITAA 1936.
[3] New section 101AB of the ITAA 1936.
[4] Within the meaning of new section 272-65 of Schedule 2F of the ITAA 1936.
[5] Schedule 10, item 1, Treasury Laws Amendment (Tax Reform No. 3) Bill 2026, repealing and replacing section 272-65 of Schedule 2F of the ITAA 1936.
[6] Section 272-65 of Schedule 2F of the ITAA 1936 (as currently in force).
[7] New paragraph 272-65(3)(b) of Schedule 2F of the ITAA 1936.
[8] New paragraph 272-65(3)(c) of Schedule 2F of the ITAA 1936.
[9] New paragraph 272-65(1)(b) of Schedule 2F of the ITAA 1936.
[10] Section SECT 276.55 of the 1997 Act AMIT taken to be fixed trust and member taken to have vested and indefeasible interest in income and capital.
[11] Division 275 of the Income Tax Assessment Act 1997 (Cth) (ITAA 1997).
[12] Division 276 of the ITAA 1997 (AMIT attribution rules); Division 6 of the Income Tax Assessment Act 1936 (Cth) (ordinary trust taxation rules based on present entitlement).
[13] Division 275 of the ITAA 1997.
[14] For the purposes of new paragraph 272-65(1)(b) of Schedule 2F of the ITAA 1936.
[15] New section 272-65 of Schedule 2F of the ITAA 1936.
