In this edition of It Depends, private client partner Scott Hay-Bartlem outlines how the proposed changes announced in the 2026 federal Budget will affect discretionary trusts.
From 1 July 2028, a minimum 30% tax will apply at the trust level, with exemptions for certain types of trusts, including fixed and widely held trusts, complying super funds, charities, and some testamentary trusts.
New discretionary testamentary trusts established after 12 May 2026 must have only individual beneficiaries to qualify for these exemptions.
The full impact remains uncertain until legislation is finalised.
Video transcript
Welcome to this It Depends where I talk about the proposed changes to discretionary trusts that were announced in the 2026 federal Budget.
What is the deal with the 2026 federal Budget?
So, the federal government handed down the 2026 federal Budget on 12 May 2026. They announced quite a few really important changes, particularly in the tax area. What I’m going to talk about in this edition is the proposed changes to discretionary trusts.
Where are the new rules at?
So, as I record this in early July 2026, we’ve got nothing more that’s come out about the taxation of discretionary trusts. We’ve had some carve outs I’ll talk about, but we don’t have the legislation yet. We’re purely basing it on the budget announcements with some other announcements as well. The legislation for the capital gains changes and negative gearing has actually now passed Parliament. So, we have those rules in being effective.
What has been proposed?
So, the main thrust of the changes is that from 1 July 2028, there’ll be a minimum tax payable at the trust level of 30%. It’s proposed that there’ll be some kind of tax offset system that will pass through to beneficiaries other than companies. So, it’ll be interesting to see how that all comes together.
What is exempt?
So, we’ve already had some exemptions announced in the Budget papers. So, we’ve got fixed and widely held trusts, complying superannuation funds, charities, special disability trusts, those sort of trusts will be exempt. Income of vulnerable minors and discretionary testamentary trusts, provided they we’re in existence at 7:30 pm on 12 May 2026.
Now, since we’ve had the Budget actually come down in May we’ve had a couple of other changes announced. The most important one being for discretionary testamentary trusts that are set up after 12 May 2026. But there’s two particularly important provisos. One of them is that the trust has to be set up for a genuine testamentary purposes, whatever that means. But the other, more important one is that the only beneficiaries of a discretionary testamentary trust must be individuals. We can’t have, for example, companies as beneficiaries of the discretionary testamentary trusts.
So, many existing testamentary trusts in Wills that will come into existence later, you’ll find, will have companies as beneficiaries. So, we’ll need to be watching how this develops because if we don’t satisfy the exemption, then those discretionary testamentary trusts when they exist will have that minimum 30% tax rate.
How will I be affected by these changes?
Look, this is the it depends. Now, until we have more detail, until we see the draft legislation, until we see it going through Parliament, we’re not going to know the full impact of these changes.
There are still very good reasons for using trusts. For example, asset protection, keeping assets separate from other entities, estate planning reasons for having assets in trusts. And in Estate Planning World, there are really good reasons around using discretionary testamentary trusts, for example, to keep assets away from people who can’t handle money. So, don’t discard them completely.
Outside that, we’ll need to think about is a trust the right structure now or going forward? The Budget papers did talk about having some structuring relief to move out of trusts into other structures. So, it will be interesting to see how that looks like.
Don’t forget about stamp duty because there’s different stamp duty rules in different states, different exemptions. That will be an important consideration as well.
So, there’s still a long way to go until we’ve got more information and able to give you something really concrete. In the meantime, please feel free to contact a member of our team. We’ll do some more It Depends and more podcasts and more seminars and webinars on this as things develop going forward. This is not the first time I’ve recorded this It Depends because the rules have changed a couple of times since I started. Thanks for watching this version of It Depends.
