Tax on trusts: the EET election: relief from the minimum tax, but at what cost?
This article examines the electable regime for excluded election trusts (EETs), one of two alternative pathways in the exposure draft package for a discretionary trust out of the proposed 30 per cent minimum tax. Our next article will examine the roll-over.
Treasury released the exposure drafts on 3 September 2026, and submissions close on 18 September 2026. Our 7 September 2026 article summarised the full exposure draft package.
This article focuses solely on the EET election under proposed Division 6F of Part III of the Income Tax Assessment Act 1936 (ITAA 1936), covering its operation, conditions, and limitations, and assesses the regime as drafted.
Summary of the electable regime
The excluded election trust concept
Item 2 of Schedule 1 to the exposure draft inserts Division 6F (sections 102UYA to 102UYH) into Part III of the ITAA 1936. Section 102UYA provides that a minimum tax trust is an excluded election trust at any time an EET election is in force.
The EM (Electable Regime), paragraph 1.10, confirms that trustees of minimum tax trusts in existence on 1 July 2028 may elect. Paragraphs 1.3 to 1.4 explain that Treasury developed the election following consultation in July 2026 as an alternative to restructuring. The election requires no transfer of assets, so it may avoid state and territory stamp duty.
Conditions and timing
Under subsection 102UYB(1), the trustee of a minimum tax trust may make an EET election. Subsection 102UYB(4) requires the trust to exist on 1 July 2028 and the election to be made in the period beginning 1 July 2028 and ending on the last day of the first income year commencing on or after that date.
For trusts with an ordinary 30 June balance date, this is the 2028-29 income year (EM (Electable Regime), paragraph 1.11). Subsection 102UYB(5) requires the trustee to notify the Commissioner of both the election and the nomination in the approved form by the earlier of the trust return due date and the actual lodgment date for the election year (EM (Electable Regime), paragraphs 1.13 and 1.29).
Nomination requirements
Subsection 102UYB(2) requires the EET election to be accompanied by an EET nomination specifying each beneficiary to whom the trustee may confer present entitlement to a share of both income and capital. For each beneficiary, the income share and capital share must be equal, and the total allocation must equal 100 per cent of income and capital. The nomination cannot allocate income to one beneficiary and capital to another and cannot reserve a share for future trustee discretion (EM (Electable Regime), paragraphs 1.18 to 1.20).
Subsection 102UYB(3) prohibits nominating an entity not capable of benefiting under the trust on 1 July 2028 (unless section 102UYE applies). Complying superannuation entities, partnerships, and companies that are not eligible companies cannot be nominated. EM (Electable Regime), paragraphs 1.22, 1.26 and 1.28, note that post-1 July 2028 deed amendments cannot generally expand the beneficiary pool, that partners rather than the partnership may be nominated, and that existing family trust and interposed entity elections should be checked.
Eligible companies
Subsection 102UYC(1) defines an eligible company as one with no material discretionary elements affecting members' rights or interests. Subsection 102UYC(2) lists indicators: clearly defined, specific and enforceable rights and interests to all of the income and capital, or in relation to governance, subject only to non-discretionary rules; no powers capable of significantly varying existing rights or values; constituent document variation only with consent of all members or without adverse effect; and matters determined by the Minister under paragraph 102UYC(4)(a) (EM (Electable Regime), paragraphs 1.31 to 1.35).
New section 272-65 of Schedule 2F to the ITAA 1936 similarly defines fixed trust status by reference to no material discretionary elements and this definition extends across income tax law through subsection 995-1(1) of the Income Tax Assessment Act 1997.
Effect of the election
While the EET election is in force and the nomination accompanies it, the trust is taken not to be a minimum tax trust (paragraph 102UYD(1)(a)). Paragraph 102UYD(1)(b) extends section 95A, for the purposes of Division 6, so that it applies to capital in the same way as income. Subsection 102UYD(2) requires the trustee to confer present entitlements to income and capital in accordance with the nomination each year; compliance keeps the minimum tax from applying (EM (Electable Regime), paragraphs 1.38 to 1.43).
Variation, revocation, and mutual exclusivity
Under subsection 102UYE(1), the nomination cannot be varied except under that section. Variation is permitted on the death of a nominated individual beneficiary (subsection 102UYE(2), EM (Electable Regime), paragraphs 1.45 to 1.52) or on a qualifying relationship breakdown involving two nominated individual beneficiaries (subsections 102UYE(3) and (4), EM (Electable Regime), paragraphs 1.53 to 1.59).
Subsection 102UYF(1) permits voluntary revocation but once revoked the election cannot be reinstated or remade (paragraph 102UYB(6)(a)). Subsection 102UYF(2) provides for automatic revocation where the trustee decides not to confer present entitlements in accordance with the nomination; a nominated trust vests or is wound up; or a nominated company is wound up, deregistered, ceases to be capable of benefiting, or ceases to be eligible; or an entity that held a share when the company was nominated ceases to hold that share for a non-allowable reason. An individual shareholder's death or cessation of shareholding under a qualifying relationship-breakdown order, agreement or award are allowable reasons under subsection 102UYF(3) (EM (Electable Regime), paragraphs 1.60 to 1.65).
An individual shareholder's death or cessation of shareholding under a qualifying relationship-breakdown order, agreement or award are allowable reasons under subsection 102UYF(3) (EM (Electable Regime), paragraphs 1.60 to 1.65).
On revocation, subsection 102UYG(3) deems beneficiaries not to be, and never to have been, presently entitled for the revocation year. The trustee is liable under section 99A, as applied by subsections 102UYG(3) and (4), on all net income at the top marginal rate plus Medicare levy (EM (Electable Regime), paragraphs 1.66 to 1.67).
Subsection 102UYB(6) prevents an EET election if the trustee has previously made a revoked EET election or a roll-over under Subdivision 126-C of the Income Tax (Transitional Provisions) Act 1997 (ITTP Act) applies in respect of the trust's assets. Conversely, subsection 126-431(3) of the ITTP Act prevents roll-over if an EET election has been made (EM (Electable Regime), paragraphs 1.16 to 1.17).
Summary of election, variation, and revocation requirements
Election conditions
Trust in existence on 1 July 2028 (paragraph 102UYB(4)(a))
Election made from 1 July 2028 to the last day of the trust's first income year commencing on or after that date (paragraph 102UYB(4)(b))
Nomination allocating 100 per cent of income and capital, with matched shares for each beneficiary (subsection 102UYB(2))
Beneficiaries capable of benefiting under the trust on 1 July 2028, subject to the section 102UYE variation exception; no complying superannuation entities, partnerships, or non-eligible companies (subsection 102UYB(3))
No prior revoked EET election and no roll-over under Subdivision 126-C of the ITTP Act applying in respect of the trust's assets (subsection 102UYB(6))
Notice of both the election and nomination to the Commissioner by earlier of return due date and lodgment date (subsection 102UYB(5))
Variations
Death of a nominated individual beneficiary (subsection 102UYE(2))
Qualifying relationship-breakdown order, agreement, or award involving two nominated individual beneficiaries (subsections 102UYE(3) and (4))
No other variation permitted (subsection 102UYE(1))
Automatic revocation triggers
Trustee decides not to confer present entitlements in accordance with the nomination (paragraph 102UYF(2)(a))
Nominated trust vests or is wound up (paragraph 102UYF(2)(b))
Nominated company wound up, deregistered, no longer capable of benefiting, or no longer eligible (paragraph 102UYF(2)(c))
An entity that held a share when the company was nominated ceases to hold that share for a non-allowable reason (paragraph 102UYF(2)(d))
Revocation consequences
Beneficiaries deemed never presently entitled for the revocation year (subsection 102UYG(3))
Trustee assessed on all net income at top marginal rate plus Medicare levy (subsections 102UYG(3) and (4), read with section 99A; EM (Electable Regime), paragraph 1.66)
Election cannot be reinstated or remade (paragraph 102UYB(6)(a))
Minimum tax applies in subsequent income years
Issues with the electable regime
This part addresses several respects, though not all, in which the EET election adds complexity while delivering less flexibility than trustees sought in relation to the 30 per cent minimum tax.
The election avoids a restructure without simplifying the trust
The Treasury fact sheet states that the election does not require a restructure and may not attract state and territory stamp duty. That outcome is the principal attraction of the election, although whether the drafting achieves it remains open to question.
The election nevertheless replaces the flexibility of a discretionary trust with an obligation to distribute in accordance with a fixed nomination in every income year.
The trustee must align trust resolutions with the nomination. While EM (Electable Regime), paragraph 1.21, states that the nomination does not restrict the trustee's discretion under the deed, a departure from the nomination produces substantial tax consequences.
While trust and family circumstances differ, a trustee that confines its discretion in practice runs a risk of a claim that it has breached its fiduciary duties.
The Sladen Legal submission to Treasury before the exposure drafts noted that any election needs trust law safeguards because it may otherwise require trustees to fetter future discretion contrary to the deed or their fiduciary duties.
The nomination allows limited adjustment over time
The nomination requirements do not permit annual adjustment. Section 102UYE of the ITAA 1936 permits variation only on death or relationship breakdown. The nomination does not accommodate the birth of children, incapacity, insolvency, changing commercial circumstances, changes in tax residence, new family branches, changed asset use or intergenerational succession as independent grounds for variation. Trustees therefore face a narrow alternative to an upfront restructure, and any departure from the nomination carries substantial consequences.
Automatic revocation operates disproportionately
A decision not to confer present entitlements in accordance with the nomination triggers automatic revocation under paragraph 102UYF(2)(a) of the ITAA 1936. The consequences described in section 102UYG fall on the whole of the trust’s net income for that year, not merely the amount of the inconsistent distribution.
No Commissioner discretion to disregard a revocation trigger, de minimis rule, correction period, reasonable care defence, or proportionality rule appears in the draft. An operational error that falls within paragraph 102UYF(2)(a) attracts the same statutory consequence as a deliberate departure from the nomination.
Third-party events can terminate the election
A nominated company ceasing to be eligible, being deregistered or being wound up can automatically revoke the election under paragraph 102UYF(2)(c). Paragraph 102UYF(2)(d) also applies where an entity that held a share when the company was nominated ceases to hold that share for a reason not allowed by subsection 102UYF(3). A nominated trust vesting or being wound up also triggers revocation under paragraph 102UYF(2)(b). Where a company has a discretionary trust shareholder, a change of the trustee can revoke the election.
Nominating companies and trusts serves an operational purpose in many structures. It also creates a continuing revocation risk that lies outside the trustee's direct control.
The regime requires safeguards
Treasury should consider amending the draft to provide a Commissioner discretion to disregard immaterial errors; a correction period before automatic revocation operates; consequences limited to the affected amount or income year rather than all net income; broader variation events, including incapacity, birth or adoption, insolvency, a change in tax residence and court-approved variation of the trust; a clearer definition of material discretionary elements in the primary law, supported by specific examples; and express confirmation that trust law authorises a trustee to make an election that constrains future discretion without breaching the deed or its fiduciary duties.
Practical steps for trustees and advisers
Trustees and their advisers who are considering whether the EET election is appropriate for a particular trust should begin by reviewing the trust deed to confirm who is capable of benefiting under the trust as at 1 July 2028.
Where the trustee proposes to nominate a company, advisers should examine the company's constitution for material discretionary elements affecting members' rights or interests. Advisers should also model the financial outcomes of the EET election against both the roll-over and acceptance of the 30 per cent minimum tax, considering the trust's typical distribution patterns, the composition of its beneficiary pool and the capacity of each beneficiary to absorb the minimum tax offset.
Trustees and advisers should also check existing family trust elections and interposed entity elections under Schedule 2F to the ITAA 1936, because the trustee should consider whether proposed nominees are members of the relevant family group (EM (Electable Regime), paragraph 1.28). Because the EET election and the roll-over are mutually exclusive, trustees should not commit to either before the final legislation is settled.
Sladen Legal’s tax team regularly advises accountants, private business owners, family groups and trustees on trust taxation, Division 7A, FTEs, restructuring, and ATO engagement. If you or your clients would like to understand how the draft legislation and / or the EET election may affect existing structures, please contact a member of our tax team.
For more information please contact:
Neil Brydges
Principal | Accredited Specialist in Tax Law
M +61 407 821 157 | T +61 3 9611 0176
E nbrydges@sladen.com.au
Daniel Smedley
Principal | Accredited Specialist in Tax Law
M +61 411 319 327 | T +61 3 9611 0105
E dsmedley@sladen.com.au
Kaitilin Lowdon
Principal Lawyer
M +61 402 859 214 | T+61 3 9611 0120
E klowdon@sladen.com.au
Edward Hennebry
Special Counsel
M +61 428 439 730 | T +61 3 9611 0113
E ehennebry@sladen.com.au
Kseniia Gasiuk
Associate
T +61 3 9611 0160
E kgasiuk@sladen.com.au
James Gao
Lawyer
T +61 3 9611 0166
E jgao@sladen.com.au
