This month, we look at four developments that may affect your tax planning, record keeping and compliance—from the proposed minimum tax on discretionary trusts to higher Commonwealth penalties, updated travel allowance rates and SMSF property audit requirements.

Here’s what you need to know and what you can do now.

September at a glance

• Discretionary trusts: Treasury has released draft legislation for the proposed 30% minimum tax, but the measure is not yet law.
• Travel and overtime meals: The ATO has updated its reasonable amounts for 2026–27, including a $40 overtime meal amount.
• Commonwealth penalties: The penalty unit increased to $364 from 1 July 2026.
• SMSF property: Trustees should begin gathering valuation evidence and reviewing related-party leases ahead of their annual audit.

Proposed minimum tax on discretionary trusts

Treasury has now released exposure draft legislation, providing more detail about how the proposed tax may operate. The measure is not yet law.

Discretionary trusts, often referred to as family trusts, have been a popular structure for Australian families and businesses for many decades. They are commonly used to operate family businesses, hold investments and assist with succession planning. Their flexibility, together with asset protection and estate planning benefits, has made them an attractive option for many groups.

In the 2026–27 Federal Budget, the Government announced a proposed 30% minimum tax on the taxable income of certain discretionary trusts from 1 July 2028. Treasury released the first tranche of exposure draft legislation and explanatory materials on 3 September 2026.

The Government says the proposal is intended to better align the tax paid on trust income with that paid by salary and wage earners, while reducing opportunities to split income between family members. Professional and business groups remain concerned about the complexity, compliance costs and practical impact on genuine family businesses and investment structures.

IMPORTANT
Treasury released exposure draft legislation on 3 September 2026, with consultation open until 18 September 2026. The measure is not yet law, further legislation is expected and some details remain unresolved.

What the exposure draft tells us

The proposed tax would operate as a top-up. Broadly, the trustee would pay enough additional tax to bring the tax paid on relevant trust income to at least 30%.

Eligible non-corporate beneficiaries would generally receive a non-refundable tax offset recognizing the minimum tax paid by the trustee. Corporate beneficiaries would not receive this offset unless an existing trust makes the new election described below and the company satisfies the eligibility requirements.

The draft distinguishes between trusts that fall outside the regime and income that is excluded. Fixed trusts, special disability trusts, deceased estates and complying superannuation entities are among the trusts excluded under the draft. Excluded income would include qualifying primary production income, certain income of vulnerable minors, qualifying testamentary trust income, some distributions to charities and other exempt entities, and amounts subject to non-resident withholding tax.

The Government has stated that more than 90% of small businesses are not expected to be affected. However, the impact will depend on the trust, its income and beneficiaries, and the way distributions are currently made.

What could this mean in practice?

One area likely to receive close attention is the use of companies as beneficiaries of family trusts.

Many family groups have historically distributed trust income to a company to manage cash flow, retain profits or fund future growth. Under the exposure draft, a corporate beneficiary would not generally receive an offset for minimum tax paid by the trustee. This could make company distributions materially more expensive. A limited exception may be available where an existing trust makes the new Excluded Election Trust election and nominates an eligible company with fixed entitlements.

Restructuring may also affect carried-forward trust losses and other existing tax attributes. These consequences would need to be modelled before any option is selected.

Affected groups may ultimately have three broad choices: retain the trust's flexibility and accept the minimum tax, restructure during the transitional rollover period, or make the new election available to certain existing trusts.

The exposure draft includes a three-year rollover window from 1 July 2027 to 30 June 2030. It is intended to allow eligible trusts to transfer relevant assets to another structure without immediate income tax or capital gains tax consequences. The relief generally defers tax rather than permanently eliminating it, as the recipient inherits the trust's tax cost and history.

The draft rollover contains important limitations. Relevant assets generally need to move to one transferee entity and required transfers must be completed within the three-year window. A four-year integrity period would also apply. The rollover does not remove GST, fringe benefits tax or state and territory duties, so stamp duty and other commercial costs may remain significant.

A new alternative for existing trusts

The exposure draft introduces an Excluded Election Trust option for certain discretionary trusts in existence on 1 July 2028. An eligible trust could elect to remain outside the minimum tax regime by nominating its beneficiaries and permanently fixing the proportions in which they receive trust income and capital.

The election would significantly restrict the flexibility normally associated with a discretionary trust. The income and capital percentages must be the same and total 100%. Changes would generally be allowed only in limited circumstances, such as death or relationship breakdown. Departing from the nominated proportions could revoke the election and trigger significant tax consequences.

The rules are not yet final

This is the first tranche of exposure draft legislation and further rules are expected, including provisions dealing with administration, reporting and interactions with other tax measures. Consultation on the exposure draft is open until 18 September 2026. The proposal is not yet law and may change.

No immediate restructuring decision is required. However, there is now enough information for potentially affected groups to begin reviewing their trust deeds, beneficiary arrangements, corporate beneficiaries and existing family trust or interposed entity elections.

Each option may have different tax, commercial, asset-protection, estate-planning and state duty consequences. We can help you model the alternatives and identify any further information needed as the legislation develops.

What should you do now?      

• Identify trusts that regularly distribute income to corporate beneficiaries.
• Review trust deeds and existing beneficiary arrangements.
• Compare the potential cost of accepting the minimum tax, restructuring or making an Excluded Election Trust election.
• Consider stamp duty and other non-income-tax costs before making structural changes.
• Monitor the legislation as it develops and obtain advice before acting.

New reasonable travel and overtime meal rates

The ATO has updated its 2026-27 reasonable amounts, including an overtime meal amount of $40. The amounts are not automatic deductions.

The ATO has released its updated reasonable travel and overtime meal allowance rates for the 2026–27 income year in Taxation Determination TD 2026/4.

The overtime meal allowance has increased to $40.00, while the reasonable amounts for domestic and overseas travel have also been updated based on salary levels and travel destinations.

Although these figures are widely publicised each year, they are often misunderstood. A common misconception is that employees can automatically claim a tax deduction up to the ATO's published rates. In reality, the rules are much narrower, and applying them incorrectly could lead to deductions being denied as well as interest and penalties.

EXAMPLE
Receiving a $40 overtime meal allowance does not automatically create a $40 deduction. The employee must have worked qualifying overtime, received a genuine allowance and actually incurred a deductible meal expense.

A travel allowance is the starting point

The ATO's reasonable amounts only become relevant if an employee receives a genuine travel or overtime meal allowance from their employer.

Generally, an allowance should:

• Be paid specifically to cover work-related travel or overtime meal expenses;
• Relate to particular work trips or overtime worked, rather than being a general additional payment;
• Be shown separately from normal salary or wages; and
• Be intended to help cover expenses the employee is expected to incur.

If an amount has simply been built into an employee's normal salary package or is not identified as a separate allowance, the ATO's reasonable rates generally do not apply. Instead, the normal substantiation rules will usually apply to any deduction claimed.

The reasonable rates are not an automatic deduction

One of the most common misunderstandings is that receiving a travel allowance allows an employee to automatically claim the ATO's published rate as a tax deduction.

This is not how the rules operate.

Employees can generally only claim the amount they actually spend on deductible work-related travel or overtime meal expenses. The ATO's reasonable amounts simply mean that, in certain circumstances, employees may not need to keep a receipt for every specific expense.

Importantly, the expenses must still have been incurred and they must relate to work-related activities.

Good records are still essential

Even where a genuine travel allowance has been paid, employees should still keep sufficient records to demonstrate that they incurred the expenses and that their claim is reasonable.

Useful records may include:

• A diary recording work trips and overnight travel;
• Details of meals and incidental expenses incurred while travelling;
• Bank or credit card statements showing the expenses were personally paid;
• A representative sample of receipts; and
• Where travel involves six or more consecutive nights away from home, a travel diary recording the dates, locations and purpose of the travel.

While receipts may not always be required, relying solely on the ATO's published rates without any supporting evidence could expose you to unnecessary scrutiny if your return is reviewed.

PRACTICAL STEP
Check the allowance wording on your payslip and start keeping records as you go. Reconstructing travel details at tax time is much harder.our content here

Practical tips for employees and employers

If you receive a travel or overtime meal allowance, it is worth checking that the arrangement satisfies the ATO's requirements before claiming a deduction.

Some practical steps include:

• Review your payslip. Check that the allowance is separately identified rather than being included in ordinary salary or wages.
• Keep records throughout the year. Maintaining a simple travel diary and retaining some supporting documents is much easier than trying to recreate the information months later.
• Only claim what you actually spend. The ATO's reasonable amounts are not a target or standard deduction. They simply provide a benchmark for when the normal receipt requirements may be relaxed.
• Take extra care on longer trips. If you are away from home for six or more consecutive nights, additional travel diary requirements will generally apply.

A little preparation can avoid problems later

The updated reasonable amounts provide a useful guide for employers and employees during the 2026–27 income year, but they should not be viewed as an automatic entitlement to a tax deduction.

Understanding how the rules operate, keeping appropriate records and claiming only genuine work-related expenses can significantly reduce the risk of problems if the ATO reviews your tax return.

If you or your employees receive travel or overtime meal allowances, now is a good opportunity to review your current arrangements. We can help you confirm whether the allowances meet the ATO's requirements and what records should be kept to support any future claims.

Commonwealth penalty units increased from 1 July 2026

The penalty unit rose from $330 to $364, increasing the cost of late lodgments and other Commonwealth compliance failures.

From 1 July 2026, the value of a Commonwealth penalty unit increased from $330 to $364. While this may sound like a minor administrative change, it has a direct impact on many ATO penalties, increasing the cost of a range of compliance failures.

A penalty unit is simply the method used under Commonwealth law to calculate many fines and administrative penalties. Rather than specifying a fixed dollar amount, the legislation often refers to a certain number of penalty units. As the value of a penalty unit increases, so too do the penalties that rely on it.

The new value applies to breaches that occur on or after 1 July 2026. Earlier breaches continue to be assessed using the previous rate.

ACT EARLY
The ATO may consider remission where there are genuine mitigating circumstances, reasonable care has been taken or a voluntary disclosure is made. Options are usually better before formal compliance action begins.

Where the increase may be felt

Many of the ATO's administrative penalties are based on penalty units, meaning the increase flows directly through to the amount payable.

Failure to lodge on time

One of the most common penalties applies where tax returns, activity statements or other required documents are lodged late.

The base penalty is generally one penalty unit for every 28 days (or part of 28 days) that a document remains outstanding, up to a maximum of five penalty units.

For a small entity, this means the maximum base penalty has increased from $1,650 to $1,820. Higher penalties may apply to medium and large entities, while significant global entities are subject to much larger penalty amounts.

False or misleading statements

Providing incorrect information to the ATO can also result in penalties.

Where there is no tax shortfall, the law provides for base penalties of 20, 40 or 60 penalty units, depending on the circumstances and the taxpayer's level of care.

At the new penalty unit value, these base penalties have increased to $7,280, $14,560 and $21,840 respectively, before taking into account any reductions or increases that may apply.

Self-managed super funds

Trustees of self-managed superannuation funds (SMSFs) should also be aware of the higher penalty amounts.

A range of SMSF administrative penalties are calculated using penalty units. For example, some breaches that previously attracted a penalty of $19,800 (60 penalty units) now carry a penalty of $21,840.

Importantly, these penalties are generally imposed on each individual trustee rather than the fund itself. This means the total cost can increase significantly where a fund has multiple individual trustees, and the penalties cannot usually be paid from the assets of the superannuation fund.

Other obligations, such as certain record-keeping requirements, tax invoice obligations and some superannuation guarantee penalties, may also be affected by the higher penalty unit value.

Why this matters

For most taxpayers, these penalties are entirely avoidable.

Late lodgments, poor record keeping and incorrect information remain some of the most common reasons businesses and individuals incur ATO penalties. While the increase in penalty units may not seem substantial on its own, the cost can add up quickly where there are multiple outstanding obligations or repeated compliance issues.

It is also worth remembering that ATO penalties are generally not tax deductible, meaning they must be paid from after-tax income.

The good news is that the ATO will often consider remitting penalties (in part or full) where there are genuine mitigating circumstances, reasonable care has been taken, or a voluntary disclosure is made before the issue is identified by the ATO. Addressing problems early typically results in a better outcome than waiting until formal compliance action begins.

Practical steps to reduce your risk

There are several simple steps that can help minimize the risk of penalties:

• Lodge on time. Providing information to us well before due dates gives enough time to prepare accurate returns and meet lodgement deadlines.
• Keep good records. Accurate and up-to-date records make it easier to prepare returns correctly and support your tax positions if questions arise.
• Review your compliance regularly. If you operate a business or manage an SMSF, periodic reviews can identify issues before they become costly.
• Seek advice early. If you think you've made a mistake or have fallen behind with your tax obligations, speaking with us as soon as possible will generally provide more options than waiting for the ATO to contact you.

A timely reminder

The increase in penalty units is a timely reminder that the cost of tax non-compliance continues to rise. While the higher penalties are intended to encourage timely and accurate compliance, they also reinforce the value of good record keeping and proactive tax management.

If you have any concerns about outstanding lodgments, record-keeping obligations or any other tax compliance matter, please contact us. We can help you address issues early and minimize the risk of unnecessary penalties.

SMSF property: preparing for a smoother audit

Property valuations and related-party leases are common sources of audit delays. Strong evidence prepared early can make the process much easier.

For many SMSF trustees, property is one of the most significant assets held by their SMSF. Unlike personally owned assets, there is a legal requirement that all SMSF assets are valued each 30 June. This can be a simple process for assets that have a ready market like listed shares, however the process for other assets like property can be more onerous.

Trustees are responsible for determining the market value of fund assets. After your annual financial statements are prepared your fund auditor will need to see objective and supportable evidence that backs up how you have arrived at the market value.

Trustees have the option to use a qualified independent valuer for this and should consider this where an asset represents a significant part of the fund’s value or might be difficult to value.

Where trustees choose not to use an independent valuer, they will need to be able to support asset valuations with evidence from multiple sources. Typically, for property this may include:

• Several recent sales of genuinely comparable properties, taking into account factors such as location, size, use and condition.
• A real estate agent appraisal that also includes comparable sales.
• Net income yields for commercial property (generally not sufficient evidence on its own).

The ATO includes some helpful guidance on this in their Guide to valuing SMSF assets.

Where an SMSF holds property that meets the business real property (BRP) definition it is possible that this property can be leased to a business that is operated by a member or a related party of the SMSF. However, the fact that an arrangement like this is permitted does not mean the fund trustees can charge a non-market rate of rent.

When a rental arrangement is entered into with a related party of the super fund, that arrangement should be on arm’s length (commercial) terms and this should be supported by a rental appraisal. An easy way to think about this is – do all the lease terms reflect an arrangement that would be agreed to if the tenant was an unrelated third party?

To evidence that a related party arrangement is on arm’s length (commercial) terms an auditor should be provided with;

• A properly documented lease;
• A rent appraisal when the lease was first entered into;
• Evidence that the arrangement is operating based on the terms of the lease; and
• Evidence that where a prior lease term has expired the terms have been reset to market value – backed up by a new rent appraisal.

Although your financial year 2026 SMSF audit might not be taking place for some months, the process can be much smoother where SMSF trustees are proactive and start to compile this evidence in advance, rather than waiting for the auditor’s request. 

PREPARE NOW
Gather valuation evidence and review related-party leases before the audit file is requested. Missing or outdated documents are much easier to address early.

Need help?

If any of these issues may affect you, please contact our team. We can help you understand the practical impact, review your current arrangements and identify the next steps.