This article has been updated to reflect Government announcements released on 19 June 2026. The measures discussed remain proposed only and will require legislation to pass Parliament before becoming law.

Following consultation after the 2026-27 Federal Budget, the Government has announced further detail on its proposed trust taxation reforms.

Key updates as of 19 June 2026

You can jump straight to the latest announcements below:

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Looking for updates on the proposed capital gains tax reforms?

Read our companion article, “Proposed CGT changes to reshape taxation of capital gains from 2027“, which includes the latest announcements affecting small business CGT concessions and start-ups.

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Proposed changes

The Government has proposed introducing a minimum 30% tax on the taxable income of discretionary trusts from 1 July 2028.

The proposal is intended to create a minimum level of taxation on discretionary trust distributions regardless of the marginal tax rate of the beneficiary receiving the income.

If implemented, the reforms could significantly change the taxation outcomes for family groups, investment structures and business owners who use discretionary trusts as part of their wealth management or succession planning strategies.

While the proposal has generated significant discussion, it is important to remember that the measures remain proposed only and are subject to legislation.

How would the proposed minimum tax work?

Under the proposal, discretionary trust income distributed to beneficiaries would generally be subject to a minimum tax rate of 30%.

The Government has indicated that a number of exemptions and carve-outs will apply, although the full legislative detail is still being developed.

Following consultation, several important clarifications have now been announced.

Testamentary discretionary trusts

One of the most significant announcements is that testamentary discretionary trusts established for genuine testamentary purposes would generally be exempt from the proposed minimum 30% tax.

This announcement provides welcome certainty for many families who incorporate testamentary trusts into their estate planning arrangements.

The Government has indicated that integrity measures will accompany the exemption to ensure testamentary trusts are used for genuine inheritance purposes rather than broader tax planning opportunities.

While the detailed legislation is yet to be released, the announcement significantly reduces concerns that the proposal could unintentionally impact common estate planning structures.

Why testamentary trusts matter

Testamentary discretionary trusts have long been an effective estate planning tool, allowing a Will maker to provide flexibility in how assets are managed and distributed after their death.

They can assist with:

• Protecting assets for future generations.
• Managing distributions to beneficiaries with changing circumstances.
• Providing flexibility for families over time.
• Supporting long-term succession and wealth planning.

The proposed exemption is therefore a positive development for families intending to establish or maintain testamentary trust arrangements.

How will the rules be implemented?

The Government has also announced that a number of important elements of the proposal will be included directly in the primary legislation rather than being left to regulation.

This includes:

• The types of income support payments, such as pensions, family tax benefits and paid parental leave, that will qualify for an exemption from the proposed minimum tax.
• Key definitions and eligibility criteria that provide certainty around how the rules will operate.

Including these measures in primary legislation is intended to provide greater transparency and reduce uncertainty for taxpayers and advisers.

What hasn’t changed?

While the announcement of a testamentary trust exemption is welcome, the broader proposal to introduce a minimum 30% tax on discretionary trust income remains unchanged.

At this stage:

• The proposal continues to apply to discretionary trusts generally.
• Testamentary discretionary trusts are proposed to be carved out, subject to integrity measures.
• The legislation is still being developed and further consultation may result in additional refinements.

What could this mean for families and business owners?

Discretionary trusts remain a widely used structure for investment, business and succession planning.

Although the proposed exemption provides reassurance for testamentary trusts, families and business owners should continue monitoring the broader reforms as they develop.

Those considering establishing a discretionary trust, updating their estate plan or reviewing an existing structure may wish to seek advice before making significant decisions.

What should you do now?

While there is greater clarity following the Government’s latest announcements, the proposed trust taxation reforms are still evolving.

The exemption for genuine testamentary discretionary trusts is a positive outcome for estate planning, but the broader proposal could still have significant implications for many existing discretionary trust structures if enacted.

Our team is continuing to monitor the legislation and consultation process and will provide further updates as more detail becomes available.

If you would like to discuss how the proposed discretionary trust reforms or testamentary trust exemption may affect your circumstances, please contact your AFS advisor.