Federal Budget 2026-27 – Update on Tax Changes & Testamentary Trusts

The bill which looks to create a minimum 30% tax rate on discretionary trusts has now been introduced to parliament. With further detail now available, we take a closer look at what the proposed changes could mean for testamentary trusts and existing Wills.

This follows our earlier articles on the analysis of the proposed changes and update on the testamentary trust exemption.

What the proposed changes mean

While it is not yet law, and could change, the key takeaways are:

1. Most trusts (whether created by deed or Will) will be included in the regime. Exceptions include “fixed” trusts (another area of complexity), special disability trusts, deceased estates and charitable trusts.
   
   
2. There is a second concept of minimum tax income, which means you can have discretionary trust otherwise caught in the regime but then have certain income excepted. The main relevant aspects of this, which relate to testamentary trusts are:
   
   
   1. The income has to be sourced from assets passing via the estate. While the bill doesn’t expressly refer to super death benefits, there is at least an argument these should be included as an asset passing via the estate which is supported by previous private binding rulings from the Tax Office.
      
      
   2. For testamentary trusts established post 1 July 2028, the “instrument” must not allow distributions other than to individuals or charities. That means no corporate or related trusts can be in the beneficiary class. Note also the timing issue is linked to the commencement of the trust not the date of death.

What this means for your Will

There is a lot of press around saying all Wills need to be reviewed. For many of our clients, who have used only optional testamentary trusts, there is no immediate urgency, given that our model provides sufficient flexibility to adapt to these changes prior to the testamentary trust being established.

For other clients, where the Will is less flexible (eg. forced life interests or protective trusts or capital reserved trusts), there will need to be consideration as to whether the Will should be changed. However, even in these cases, it will not be a one size fits all approach and consideration will need to be given to a balance of the other reasons these trusts are in place (apart from tax). Remember, this is not law yet, so it could change.

How we can help

The Wills, Estate Planning and Structuring team at Moores is across the issues and will provide further updates as they come to light. In the meantime, if you have further queries, feel free to contact our office.

Contact us

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^{Disclaimer: This article provides general information only and is not intended to constitute legal advice. You should seek legal advice regarding the application of the law to you or your organisation.}

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