The 2026 Federal Budget has proposed some of the most significant changes to Australia’s tax regime in recent years.
As a result of proposed tax changes to testamentary discretionary trusts, some of our clients contacted us with concerns about whether all estates would soon be subject to a new “death tax”.
At the time of publication of this newsletter, a new “death tax” will not be applicable to all deceased estates. Initially, the Federal Government proposed to introduce a new minimum tax rate of 30% on income generated from some estates where the Will provided for the estate to be administered through a discretionary trust structure (known as a testamentary discretionary trust), but subject to some types of trusts being excluded (including special disability trusts). These proposed changes were to apply from 1 July 2028. In the initial weeks following Federal Budget night, it had been our advice to concerned clients to continue monitoring these developments as the initial announcements contained limited information on these reforms, which were yet to be debated in Parliament and enacted into law.
These reforms have since been wound back, with the Government no longer proposing to introduce this tax on testamentary discretionary trusts. However, the Government has indicated it may introduce “integrity measures” on the operation of some testamentary discretionary trusts and the requirement that these trusts are established for “genuine testamentary purposes”. No further clarification has been provided on what these potential caveats mean.
We are continuing to monitor the Federal Budget proposals and how they may affect our practice of drafting of Wills and the administration of deceased estates.
For general information on the benefits that continue to be offered by incorporating a testamentary discretionary trust in a Will, please click here to download our information sheet. As these trusts are not suitable for all clients, our experienced Estate Planning team is available to provide advice tailored to individual circumstances.
Separately, many of our clients have existing discretionary trust structures which have not been established by Will, for example, to operate businesses or as investment vehicles. To date, the new proposal of a minimum 30% income tax rate to these trusts from 1 July 2028 may still apply. However, this is yet to be debated and pass through Parliament without amendments. Clients who may be impacted by these changes should continue monitoring the proposals, and remain in close contact with their accountants, as tax advice should be sought in relation to how any new tax rates may impact the unique circumstances of each trust and whether it is appropriate to restructure before any reforms become effective.