Is there still a future for testamentary trusts after 2028? — Estate Planning Equation = Preventative Law

Proposed changes to discretionary trusts

Following the recent announcements from the Federal Government in the 2026 Federal Budget papers, there will be a minimum 30% tax on discretionary trusts established during a person’s lifetime. From 1 July 2028 (unless modified by the Government in the meantime), trustees of discretionary trusts will pay a minimum tax of 30% on the trust’s taxable income and beneficiaries will receive a non-refundable tax credit for the tax already paid by the trustee.

Testamentary trusts v family discretionary trusts:

The minimum 30% tax rate was announced to apply to all discretionary trusts regardless of how they were established. On 18 June 2026, the Government announced a carve out of that minimum tax rate so that it is not to apply to “genuine” testamentary trusts even if those trusts are discretionary. We expect that the carve out will not extend to testamentary trusts which are not solely funded by a deceased estate.

The capital gains tax changes highlighted below will however, impact on testamentary trusts unless they qualify for the main residence exemptions or for small business concessions.

What does it mean to you?

1. This minimum tax only applies to discretionary trusts established during a person’s lifetime.

2. Certain trust structures are exempt from the minimum tax regime. They include fixed unit trusts, testamentary trusts, special disability trusts, rights of occupation in respect of the family home and complying superannuation funds.

3. Business structures which include bucket-company strategies, will be taxed at both the trust level and the company level.

4. Many small businesses operate within a discretionary trust structure and will need to consider restructuring into a fixed trust or company, with rollover relief available from 1 July 2027 (for a period of three years). There is limited information at the moment whether the rollover relief includes relief from state taxes such as land transfer duty, and we await full legislative detail and ATO guidance.

What we recommend?

While we wait for draft legislation to be publicised, we recommend that you:

1. Review your current estate planning, particularly your Wills and evaluate if they need to be updated. The income changes announced to discretionary trusts should not affect most existing Wills.

2. If your Wills were not prepared by our firm, consider adding flexibility within your Wills.

3. Review the use of bucket companies and discretionary trusts and start planning for those to be restructured once final legislation is available.

Overhaul of the Capital Gains Tax (CGT)

Proposed changes to CGT:

From 1 July 2027, the blanket 50% CGT discount will be replaced by cost-based indexation for assets held longer than 12 months.

What does it mean to you?

1. The CGT 50% discount still applies in full for assets purchased and sold before 1 July 2027.

2. Indexation and minimum 30% tax will apply for all assets purchased and sold from 1 July 2027.

3. The option to use the CGT 50% discount and the small business CGT concessions remains available to small businesses, with the gross turnover maximum threshold to be increased to $10 million for the 50% discount. The other small business CGT concessions, e.g. sale proceeds for transfers into superannuation, remain subject to existing lower caps.

4. Transitional measures will apply to assets purchased prior to 1 July 2027 and sold after 1 July 2027.

This article is for information purposes and does not constitute specific legal or tax advice. Specific advice should be sought in relation to individual circumstances.

Authors: Karen Ho, Laura Armstrong and Allan Swan
Email: karen.ho@epeq.com.au Tel: +613 7046 0906. July 2026