Federal Budget 2026–2027: tax snapshot: why trusts still matter
From 1 July 2028 the government will introduce a minimum 30 per cent tax on income of discretionary trusts, payable by the trustee. As always there will be some roll over relief and exceptions to this general rule. The new tax will not apply to deceased estates, complying superannuation funds and fixed testamentary trusts. It will also not apply to certain types of income (regardless of the type of trust) including primary production income, income relating to vulnerable beneficiaries and income from assets of discretionary testamentary trusts that existed on 12 May 2026.
Although the detail of the 30per cent proposed tax is yet to be seen, it will impact the opportunities available for tax planning via discretionary trusts. For further discussion of this and other proposed tax changes, read our article 2026-2027 Federal Budget: tax snapshot: the game has changed, how to pick up the pieces.
The Treasurer’s budget does not however diminish the asset protection role of trusts, particularly in the context of testamentary trusts and protecting inheritance.
Key takeaways
The Budget changes how trusts are taxed, but not the long-term opportunities to protect and secure wealth. Trusts will remain a key wealth structuring tool, assisting families with:
long-term wealth protection;
intergenerational planning; and
strategic ownership whether through discretionary trust or consideration of other options such as fixed trusts, superannuation funds, special disability trusts, or charitable trusts not subject to the proposed minimum 30 per cent tax on income.
Why trusts remain important
Despite the proposed new tax, discretionary trusts and testamentary trusts will still retain their structural benefits:
- Asset protection
Discretionary trusts continue to separate ownership from personal risk, helping safeguard family wealth from both a creditor perspective and, in certain circumstances, a family law perspective. - Succession planning
Trusts continue to provide succession flexibility in how assets are passed between generations, enabling controlled and tax-effective estate outcomes. This same flexibility is not necessarily available in a company structure.
With key changes not applying until 2027/2028, now is the time to review existing structures and succession plans and think ahead.
From an investment perspective, trustees and advisors to testamentary trusts should be cautious of the scope of the exclusions noted above. The Budget papers do not state that pre-existing testamentary trusts will be excluded from this new tax. Rather, ‘income from assets of discretionary testamentary trusts that exist [12 May 2026]’ is a form of income that will be excluded. This suggests that any assets held by testamentary trusts as at 12 May 2026 will be quarantined, and any new or replacement assets acquired moving forward will be subject to the new tax. While the new measure will not take effect until 1 July 2028, this has an immediate impact on current investment decisions and record-keeping.
Our specialist Private Clients team can provide advice on how these changes might impact your structures and planning.
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