STEP AUSTRALIA SUBMISSION – Proposed Changes to Taxation of Discretionary Trusts
STEP Australia has made a submission to the Treasurer of Australia regarding the Proposed Changes to Tax on Testamentary Discretionary Trusts and its impact on established Estate Planning by testators.
Following the Federal Budget announcement, STEP Australia was concerned that the proposed minimum tax regime overlooked the protective purpose of testamentary discretionary trusts. The Budget materials created significant uncertainty around the treatment of testamentary trusts, superannuation proceeds trusts, and other family trust arrangements, resulting in widespread concern across the succession planning profession.
Many STEP Members in Australia reported increasing concern from clients who feared that existing estate planning arrangements, or proposed testamentary trust structures, would be adversely affected by the proposed measures.
STEP Australia therefore welcomes the Government’s announcement of 18 June 2026 confirming that income from all types of discretionary testamentary trusts established for genuine testamentary purposes will be exempt from the proposed minimum tax regime. This clarification addresses one of the principal concerns raised by STEP Australia and appropriately recognises that testamentary trusts serve fundamentally different functions from discretionary trusts established during a person’s lifetime.
The announcement provides welcome reassurance to practitioners and families and represents an important acknowledgement of the legitimate role testamentary trusts play in Australian succession planning.
However, while this development is welcomed, several important technical and implementation issues remain unresolved and will require further consultation and legislative clarification.
STEP Australia’s submission highlights concerns regarding:
🔹 The broader protective function of testamentary discretionary trusts which allows trustees to adapt to beneficiaries’ changing needs;
🔹 The need for transitional arrangements to take into account the financial cost of restructuring established estate plans and the potential that a testator may now lack capacity to restructure their plan;
🔹 The need for clarification of:
➡️ What is meant by “genuine testamentary purposes”;
➡️ How the restriction to trusts that can only benefit individuals and income tax exempt entities will be applied; and
➡️ The meaning of when a testamentary trust is “established” for the purposes of the transitional arrangements.
We look forward to continuing to engage constructively with Government to ensure the legislation achieves its policy objectives without creating unintended consequences for succession planning and vulnerable beneficiaries.
Head to STEP Australia Advocacy Page to view more of our Advocacy work – www.stepaustralia.com/advocacy-and-policy-submissions-in-australia