Back Track and Carve Out – Testamentary Trusts Excluded from 30% Trust Tax

Succession PlanningSuperannuationTaxTrusts
Written By Jemimah Fitzgerald

Commencing from 1 July 2028, the 2026-27 Federal Budget (Budget) announced the proposed introduction of a 30% minimum tax on the taxable income of discretionary trusts (Minimum Tax), payable by the trustee of the trust. Non-corporate beneficiaries receiving trust distributions would be entitled to a tax credit for the tax paid by the trustee, which could be applied against their own income tax liabilities.

Following consultation, including announcements made on 18 June 2026, the Federal Government (Government) announced amends to the proposal to provide a significant carve-out for testamentary trusts that satisfy specified integrity requirements. This represents a significant change from the Government’s original position and is particularly relevant for clients considering discretionary testamentary trusts (DTTs) as part of their succession planning.  

The Government has confirmed that the amendment maintains the existing policy treatment of inheritances and deceased estates, and that the measure does not effectively introduce a tax on inheritances themselves.

The Exclusion

On Budget night, the Government announced that DTTs created after 12 May 2026 would be subject to the Minimum Tax, with no specific exclusions available. At a trust level, trustees of the DTTs therefore have been liable for the Minimum Tax.

However, within weeks and following consultation, the Government announced a significant carve-out. Income derived from DTTs will be conditionally excluded from the Minimum Tax where the trust satisfies specified integrity requirements. Thes requirements include that:

  1. the DTT is established for a genuine testamentary purpose;

  2. the income is derived from assets of the deceased estate; and

  3. eligible beneficiaries are confined to individuals and tax-exempt entities.

As a result, DTTs may be excluded from the Minimum Tax where these integrity criteria are satisfied. However, the detailed scope of exclusions and the integrity rules remain subject to the final legislation being passed.

What does the carve-out mean for you?

While the proposed carve-out is welcome news for individuals and families who use DTTs as part of their succession planning. However, the legislation has not yet been finalised, and the detailed eligibility and integrity rules are yet to be released.

If you already have a will containing provisions of the establishment of a DTT, or are considering incorporating DTTs in your estate planning, there is generally no need to make immediate changes solely because of this announcement.

For many individuals and families, DTTs continue to offer significant benefits beyond taxation, including:

  1. flexibility in managing and distributing assets;

  2. asset protection for beneficiaries; and

  3. protection for vulnerable or financially inexperienced beneficiaries.

As the legislation develops, it will be important to review estate planning arrangements to ensure they continue to align with your personal circumstances, and long-term succession planning objectives.

For more information, please contact:

Alasdair Woodford
Principal
T: 03 5225 5217 | M: 0436 456 144
E: awoodford@ha.legal

Joseph Flanagan
Senior Associate
T: 03 5226 8504 | M: 0491 307 550
E: jflanagan@ha.legal

Tayla Berger
Senior Associate
T: 03 5226 8559 | M: 0407 825 365
E: tberger@ha.legal

Jemimah Fitzgerald
Lawyer
T: 03 5225 5219
E: jfitzgerald@ha.legal

Prepared with the assistance of Pippa Duniam

Jemimah Fitzgerald