The Federal Government’s draft legislation that was released on 3 September 2026 which proposes a 30% minimum tax on certain discretionary trusts from 1 July 2028. The changes are not yet law. Their effect on testamentary trusts depends partly on when the trust is established.

For discretionary testamentary trusts established before 1 July 2028, qualifying income would remain excluded from the proposed minimum tax. Including companies or other trusts as beneficiaries would not automatically remove that exemption. Ordinary income tax rules would continue to apply.

For discretionary testamentary trusts established on or after 1 July 2028, an additional condition would apply. The relevant beneficiary must be an individual or income-tax-exempt entity. Income benefiting an ordinary company could therefore attract the minimum tax.

However, the explanatory materials to the draft legislation suggest that corporate or trust beneficiaries could jeopardise the exemption for all net income. The draft focuses on particular income derived for a beneficiary’s benefit. Clarification is needed on whether merely naming a non-exempt company as a potential beneficiary affects the entire exemption.

For both categories, the exemption generally protects income from genuine testamentary arrangements involving deceased-estate assets, including qualifying reinvestments and accumulations. Income from unrelated assets injected after 7.30 pm AEST on 12 May 2026 would generally fall outside the testamentary exemption once the regime commences. Anti-avoidance rules would also apply.

Where income is caught, the trustee would pay the minimum tax. Eligible non-corporate beneficiaries could receive a non-refundable tax offset, while corporate beneficiaries would remain assessable without that offset.

The relevant date is the trust’s establishment. Signing a will before 1 July 2028 does not itself establish the testamentary trust or secure the earlier treatment.

We recommend that clients review beneficiary definitions and asset sources with their advisers and revisit their estate plans once the legislation is settled.

Written by Cath Champion

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