EET Elections and Owies: Can a fixed beneficiary entitlement nomination coexist with discretionary trustee duties?

As the proposed 30% minimum tax on discretionary trusts regime crystallises further through exposure legislations published by the Treasury in anticipation of its commencement on 1 July 2028, a new election regime has been introduced under the Treasury Laws Amendment Bill 2026: minimum tax on discretionary trusts – electable regime, called ‘Excluded Election Trust election’ (EET election).

Overview of the EET election

Under the new 30% minimum tax on discretionary trusts regime, trustees of trusts that qualify as ‘minimum tax trust’, broadly being a trust that is not a fixed trust, a special disability trust, a testamentary trust, a complying superannuation entity or as otherwise determined by the Minister to not be a minimum tax trust, must pay the 30% minimum tax on the income of the trust subject to certain exclusions.

The EET election allows the trustee of a qualifying minimum tax trust to elect for the trust to become an excluded election trust and treated as not being a minimum tax trust.

To make the EET election, the trustee must lodge:

• an EET election; and
• an accompanying EET nomination.

The election is only available for trusts that existed on 1 July 2028 and must generally be made during the first income year commencing on or after that date.

EET nomination

An EET election, if made, must be accompanied by an EET nomination, which is arguably the most significant feature of the regime.

The EET nomination must specify:

• every beneficiary who may receive trust income and capital;
• each beneficiary’s percentage entitlement to trust income, and
• the same percentage entitlement to trust capital.

Importantly:

• capital and income percentages must be identical;
• the percentages across all nominated beneficiaries must total 100%; and
• those percentages effectively become the governing allocation framework for the trust.

For example, a trustee could nominate:

Once the EET nomination is made, it cannot be varied unless in the event of death of a beneficiary or relationship breakdown and under limited circumstances only, such as where a nominated beneficiary dies, replacement beneficiaries may be inserted in limited circumstances, generally reflecting succession through the deceased’s estate.

Limitations on Corporate Beneficiaries

A company may only be nominated if it qualifies as an “eligible company”.

Broadly, an eligible company must not contain material discretionary features affecting shareholder rights and interests. The draft legislation contemplates companies with clearly defined and enforceable ownership interests and limited ability to alter those interests through discretionary powers.

Revocation of EET election

The EET election is automatically revoked, among other things, if the trustee distributes income or capital of the trust inconsistently with the nomination. Where an election is revoked, the legislation deems the previously conferred present entitlements for that year to be ineffective and applies the ordinary trust taxation provisions accordingly.

The election can also be automatically revoked if a nominated company ceases to be an eligible company, including changes to share ownership unless they arise from specified events such as death or relationship breakdown arrangements recognised by the legislation.

Trust law position

In Owies v JJE Nominees Pty Ltd [2022] VSCA 142; 22 ASTLR 89 (Owies), the Supreme Court of Victoria Court of Appeal was particularly troubled by the fact that, for many years, the distributions from a family discretionary trust followed an almost mechanical pattern of 40:20:20 between the same beneficiaries despite changing beneficiary circumstances. The Court inferred from this pre-formulated distribution pattern that the trustee in Owies had effectively reached a standing policy rather than genuinely reconsidering distributions each year.

The Court of Appeal emphasised that a trustee of a discretionary trust:

• must undertake a genuine exercise of discretion each year;
• must give “real and genuine consideration” to the relevant beneficiaries;
• must be sufficiently informed about beneficiaries’ circumstances; and
• cannot simply adopt a settled policy or predetermined approach without proper annual consideration.

The judgment expressly noted that a trustee must exercise the discretion “as and when it arises” and cannot divest itself of that responsibility by adopting a universal rule or predetermined policy.

The interplay between EET election and Owies

The EET election regime effectively forces the trustee to adopt a pre-formulated distribution pattern until varied under limited circumstances or revoked, which is the exact thing the Court in Owies said the trustee should not do.

While the EET election regime is being introduced largely as an alternative to restructuring discretionary trusts to fixed trusts – particularly for trusts holding real properties, as restructuring may resettle the trust and result in a dutiable transaction for state duty purposes, unless the trust is actually varied to become a fixed trust, the election does not remove any of the trustee’s discretionary powers under the terms of the trust deed.

This means while the EET election is in force, the trustee, in parallel, continues to hold any existing discretionary powers in dealing with trust income and capital under the terms of the trust together with the obligation to actively and genuinely consider the position of beneficiaries each year before exercising such distribution powers.

This position is indeed further reinforced by the automatic revocation provisions of EET election.

The draft legislation says that the election is automatically revoked if the trustee decides not to confer present entitlements in accordance with the nomination. That provision assumes the trustee might make a decision inconsistent with the nomination.

But why would a trustee make that decision?

Presumably because, in performing its fiduciary duties under the deed, the trustee concludes that a different distribution is appropriate. The draft legislation therefore appears to recognise that the trustee remains capable of exercising a discretion contrary to the nomination and bound to give real and genuine consideration to the relevant beneficiaries. The price is loss of EET status.

It may be arguable that the trustee is not exercising the power of appointment of income or capital when making the EET election, but simply electing into a statutory regime that imposes certain limitations of trustee’s power to distribute, similar to the existing Family Trust Election (FTE) regime if an Owies type claim arises against the trustee. But unlike the FTE, the EET election effectively removes any existing discretionary powers of the trustee to distribute income and capital of the trust and ties the hands of the trustee from genuinely considering the position of beneficiaries each year before exercising such distribution powers.

As per Owies, if a trustee adopts an EET nomination in 2028 and then blindly follows it for 15 years irrespective of changing beneficiary circumstances, a disgruntled beneficiary could argue:

• the deed continued to confer a discretionary power;
• the trustee never genuinely considered whether the nominated distribution remained appropriate;
• the trustee simply followed a tax election; and
• therefore the trustee failed to exercise the discretion required by the deed.

A trustee’s fiduciary obligations for all beneficiaries should not be displaced simply because a particular taxation outcome is preferred. By way of analogy, the High Court in Gambotto v WCP Ltd established that securing taxation advantages and administrative benefits, such as tax savings, cannot in themselves constitute a proper purpose or satisfy the best interests of the company when amending articles to allow for expropriation of minority shareholdings in member class rights cases. Whether a similar outcome could be expected in an Owies type argument against the trustee in making an EET election and nomination – which would inevitably affect the interests of some if not most of the discretionary beneficiaries of a trust, is yet to be seen.

A significant unanswered question in the exposure draft is whether an EET nomination can coexist with an otherwise conventional discretionary trust deed. The election does not amend the trust instrument or convert discretionary interests into fixed interests and trustees remain subject to the fiduciary obligation to exercise discretionary powers in accordance with the principles discussed in Owies.

If this is the case, compliance with an EET nomination may sit uneasily with the trustee’s obligation to undertake a genuine annual consideration of beneficiaries’ circumstances. The revocation mechanism may be viewed as acknowledging this tension rather than resolving it, by permitting trustees to depart from the nomination where fiduciary obligations require a different outcome, albeit at the cost of losing EET status.

What’s next?

The consultation on the exposure draft legislation closes on 18 September 2026. While it is expected that this issue of trustee’s ongoing fiduciary duties and potential beneficiary challenges against the trustee will be raised in the feedback process, significant changes to the exposure draft legislation are unlikely.

If the EET election, and accompanying EET nomination, indeed becomes law, trustees of current discretionary trusts should assess the following before deciding whether or not to make the election:

• existing trustee’s discretionary powers in the trust deed;
• asset protection requirements of relevant beneficiaries (i.e. if asset protection is not a priority, restructuring to a fixed trust and relying on roll-over exemption may be a better option to avoid the 30% minimum tax);
• assets held in the trust (eg. if no dutiable property is subject to the relevant state duty legislation, restructuring to a fixed trust and relying on roll-over exemption may be a better option to avoid the 30% minimum tax);
• nature of income and capital distributions made historically and expected to be made by the trust in the short to medium term;
• careful consideration of the relative proximity of beneficiaries, including named beneficiaries, takers in default, related entities (noting the eligible company restriction) and charitable organisations, to the trust;
• risk of any of the beneficiaries challenging the trustee’s decision to make the EET election (eg. grandchildren, spouses of beneficiaries (if included in the beneficiary class or otherwise able to influence a beneficiary’s decision-making) if not nominated under the EET nomination);
• tax profile of potential beneficiaries and impact of 30% minimum tax on trust income (eg. the minimum tax may have less effect on high income earning individual beneficiaries as they will get the rebate);
• potential capital distributions from the trust (while the EET nomination locks in capital distributions, capital distributions of non-CGT assets (eg. cash) generally should not trigger any income tax consequences either for the trustee or for the beneficiaries).

Contact us

For further information please contact our Tax Law specialist, Peter Azam on 03 5273 5273 or email info@coulterlegal.com.au.