Tax News and Updates September 2026

1.

Proposed update on the minimum tax on discretionary trusts

The Government has released exposure draft legislation to implement the proposed 30% minimum tax on discretionary trusts from 1 July 2028 announced in the 2026-27 Federal Budget. The draft legislation largely adopts the framework as described in the Budget, notwithstanding significant stakeholder concern following the original announcement.

How the minimum tax will operate

From 1 July 2028:

1. trustees of discretionary trusts will generally be required to pay tax at a minimum rate of 30% on the trust's taxable income;
2. beneficiaries will continue to be assessed on trust distributions;
3. non-corporate beneficiaries will receive non-refundable tax credits for tax paid by the trustee; and
4. corporate beneficiaries will not receive equivalent credits, effectively preventing the continued use of "bucket companies" to reduce or defer tax below the new minimum rate.

The exposure draft also provides that trustees receiving franked dividends will be required to use franking credits to pay the minimum tax first, although refunds will be available for any excess franking credits relating to income subject to the minimum tax.

Fixed trusts

The exposure draft introduces a broader statutory definition of "fixed trust", intended to ensure trusts without material discretionary elements are not inadvertently captured.

Widely held trusts, managed investment trusts, bare trusts and employee share trusts are expected to remain outside the regime.

To assist affected taxpayers, rollover relief will be available for three years from 1 July 2027 for restructures from discretionary trusts into companies or fixed trusts.  There is no indication yet on whether a similar exemption from duty will apply.

New election regime

A significant feature of the exposure draft is a new elective regime for discretionary trusts in existence at 1 July 2028.  Eligible trust can choose to make fixed distributions to pre-nominated beneficiaries, and thereby be exempt from the new regime. Each nominated beneficiary must take the same fixed share of both income and capital, and nominated beneficiaries cannot include partnerships or complying superannuation funds.

The election does not require a restructure and is not expected to trigger duty consequences.  However, it comes at the cost of significantly reduced flexibility, as beneficiaries can generally only be added or changed following death or a family breakdown. If distributions are made inconsistently with the election, it will be automatically revoked and the trustee will be taxed at the top marginal rate plus Medicare levy for that year

Key exclusions

The minimum tax will not apply to charitable trusts, special disability trusts, complying superannuation funds, deceased estates or genuine discretionary testamentary trusts. Primary production income, certain income relating to vulnerable minors, and distributions to charities and certain exempt entities will also be excluded.

Next steps

We note the legislation is still in draft form and further changes may emerge through the consultation process.  However, the release of detailed exposure draft legislation provides the clearest indication to date that the Government intends to proceed with a minimum tax on discretionary trusts.

Private groups should use the consultation period to assess the potential impact of the reforms and consider whether retaining existing discretionary trust structures, electing into the proposed fixed beneficiary regime, or undertaking a broader restructure may provide the most appropriate long-term outcome ahead of the proposed 1 July 2028 commencement date.  Consultation on the exposure draft closes on 18 September 2026.

Budget 2026–27 Tax Explainer

Budget Paper No. 2, Budget 2026–27

Minimum tax on discretionary trusts – exposure draft legislation

2.

ATO releases draft guidance on crypto assets

The ATO has issued a draft ruling on the income tax and CGT treatment of certain crypto asset transactions.

Airdrops

Draft Taxation Ruling TR 2026/D1 considers the taxation of airdrops. The draft ruling confirms that where a taxpayer is carrying on a business of crypto asset trading, the market value of an airdropped crypto asset will generally be assessable as ordinary income, including where the airdrop is unsolicited or received as a gift or windfall. The same outcome applies where the airdrop is received in connection with goods, services or other income-producing activities.

For taxpayers not carrying on a business, the Commissioner's preliminary view is that an airdrop will generally not be assessable as ordinary income unless it is received as a reward for services or another income-producing activity. Instead, any tax consequences will typically arise on disposal of the asset, with CGT event A1 occurring at that time. The draft ruling also confirms that crypto assets received solely through a hobby or recreational activity will generally not be assessable.

Crypto wrapping and unwrapping

Draft Taxation Determination TD 2026/D2 addresses the CGT consequences of wrapping and unwrapping crypto assets. The Commissioner’s preliminary view is that CGT event C2 occurs when a taxpayer wraps an asset, as the original asset is surrendered to the smart contract and replaced with a separate wrapped asset. A further CGT event C2 occurs when the wrapped asset is subsequently unwrapped and extinguished.

Importantly, the ATO considers the wrapped asset to be a separate CGT asset from the original holding. As a result, the asset received on unwrapping is treated as a new asset with a separate acquisition history and cost base, rather than a continuation of the original holding.

Comments on TR 2026/D1 are due by 2 October 2026, while comments on TD 2026/D2 are due by 18 September 2026. The draft guidance highlights the ATO’s continued focus on crypto asset taxation and is a timely reminder for taxpayers involved in crypto markets and DeFi protocols to review their record keeping and tax treatment of airdrops and wrapping transactions.

TD 2026/D2 

TR 2026/D1 

3.

Decision impact statement - Alcoa of Australia Ltd

The ATO has released a decision impact statement in response to Alcoa of Australia Ltd and Commissioner of Taxation [2025] ARTA 482, concerning the transfer pricing rules under the former Division 13.

The case involved alumina sales by Alcoa of Australia Ltd (AoA) to a Bahraini smelter through an intermediary linked to bribery of foreign officials between 1993 and 2009.

The Administrative Review Tribunal (Tribunal) accepted that facilitating bribery is fundamentally inconsistent with arm's length dealing found that AoA had not proved it was dealing at arm's length with the intermediary. 

Despite this, the Tribunal found that this non-arm's length dealing had not resulted in AoA receiving less than arm's length consideration. The Tribunal considered that the relevant supplies needed to be considered together with a contemporaneous arm's length supply that formed part of the same overall commercial arrangement. On that basis, the consideration received was not less than what independent parties would have agreed.

In its Decision Impact Statement, the ATO accepts that taxpayers bear the burden of proving that dealings occurred at arm's length and agrees that arrangements involving bribery or corruption cannot satisfy that requirement. However, the ATO maintains its existing view on identifying the relevant international agreement for Division 13 purposes and indicates it will continue to apply existing arm's length principles from Chevron, Glencore and Singapore Telecom when identifying the arm's length hypothetical. The Commissioner considers the decision to be heavily fact-specific and has no implications for existing ATO advice or guidance products.

Comments on the decision impact statement are due by 25 September 2026.

Despite its unique fact pattern, the decision is a useful reminder that the finding of a non-arm's length dealing does not necessarily determine the transfer pricing outcome. Where related transactions form part of a single commercial arrangement, taxpayers may still be able to demonstrate that the consideration received was not less than an arm's length amount.

Decision impact statement — Alcoa of Australia Ltd v FC of T

4.

Decision not to terminate tax agent registration for failure to disclose overturned

The Federal Court has allowed an appeal by the Tax Practitioners Board (TPB) against a Tribunal decision that had set aside the TPB's termination of a tax agent's registration and substituted a written caution and remedial education.

The tax agent had failed to disclose overdue personal and associated entity tax liabilities, as well as his dismissal from a previous employer for serious misconduct, including dishonesty. The Tribunal accepted that the agent had rectified his tax non-compliance, did not exercise informal control over the relevant family trust or SMSF, and had not engaged in unsatisfactory conduct towards clients.

The TPB appealed on the basis that the Tribunal had applied the wrong test in assessing whether the tax agent was a fit and proper person, had relied on irrelevant subjective considerations, and had failed to explain how its serious findings concerning honesty and integrity could be reconciled with its conclusion that the agent remained fit and proper.

The Federal Court agreed, determining that the Tribunal failed to apply the correct legal test for fitness and propriety under sections 20-5 and 20-15 of the Tax Agent Services Act 2009.  In particular, the Court found there was no rational basis for treating the agent's grievance against his former employer as excusing a failure to provide honest evidence, noting that honesty and integrity lie at the core of the fit and proper person assessment.

The Tribunal's decision was set aside and the matter remitted for redetermination.

The decision is a timely reminder that findings concerning honesty and integrity must logically support any conclusion that a practitioner remains a fit and proper person, and that personal grievances will not excuse a lack of candour before the TPB or the Tribunal.

Tax Practitioners Board v Free [2021] FCA 1155

5.

New AI practice direction in the Administrative Review Tribunal (Cth)

The Administrative Review Tribunal (Use of Generative AI) Practice Direction 2026 commenced on 20 August 2026 and applies to all Tribunal applications. It confirms that lawyers, parties, experts and self-represented litigants may use generative AI, but only with appropriate safeguards.

The Practice Direction was adapted from the Federal Court's Use of Generative Artificial Intelligence Practice Note (GPN-AI), creating a broadly consistent approach across both bodies built around verification, disclosure, accountability and protection of confidential information.

Responsibility for filed material remains with the user, who must independently verify AI-assisted content and be able to explain how it was used and checked, given the risk of AI producing fictitious cases, non-existent citations and factual errors. AI must not be used to fabricate or alter a person's evidence, and confidential, privileged or protected information must not be entered into a publicly available AI system unless lawful and authorised.

Non-compliant material may be corrected, replaced, withdrawn or given less weight, and conduct raising possible breaches of professional obligations may be referred to a regulatory body.

Administrative Review Tribunal (Use of Generative AI) Practice Direction 2026

6.

Draft guidance on the standard deduction for work-related expenses

The ATO has issued Draft Law Companion Ruling LCR 2026/D5, explaining how the new standard deduction for work-related expenses under section 25-130 of the ITAA 1997 operates.

The ruling provides eligible Australian tax resident individuals with assessable labour income a standard deduction of up to $1,000 without the need for substantiation. Taxpayers with more than $1,000 in genuine, substantiated work-related expenses may continue to claim those expenses instead, in which case the standard deduction is reduced to zero.

The draft ruling is divided into three parts covering eligibility, calculation and substantiation consequences for individuals, the interaction with the capital allowance rules in Division 40, and the interaction with the fringe benefits tax rules for employers.

Comments are invited until 9 October 2026. The ruling is proposed to apply from 1 July 2026 once finalised.

LCR 2026/D5