A will drawn up a decade or more ago, naming a discretionary trust for children or grandchildren, often sits quietly in a filing cabinet once the solicitor’s letter arrives and the signing is done. Many older Australians treat that document as finished business. The 2026 Federal Budget, handed down on 12 May, has changed the settings underneath some of those trusts, and the family home that often sits inside them.
From 1 July 2028, a new 30 per cent minimum tax will apply to income held in or paid out of discretionary trusts. Alongside it come changes to capital gains tax and a tightening of how the family home is treated when it passes through a trust rather than directly to a person. None of this is legislated yet in full, but the direction is clear enough that anyone with a trust in their will, or a trust already running, has reason to have it looked at again.
What is the new 30 per cent trust tax?
The new tax applies to taxable income retained in or distributed from a discretionary trust, and it is the trustee who pays it. The measure is aimed squarely at income-splitting, where trust income is directed to a beneficiary with little or no other income so that it is taxed at a rate below 30 per cent instead of at the rate the main income earner would otherwise pay.
The Budget papers themselves acknowledge that trusts are not only used this way. They note trusts serve “legitimate family and commercial arrangements, including as a collective investment vehicle, for asset protection and for succession planning”, according to the Federal Budget 2026-27 as cited by Kalus Kenny Intelex (KKI) Lawyers. The firm has described the overall package as “the biggest shake-up to estate planning in a generation”.
Which trusts are left out of the new rule?
Fixed trusts, special disability trusts, deceased estates, and income from the assets of testamentary trusts that already existed at the time of the Budget announcement are proposed to be excluded from the new tax. It is discretionary testamentary trusts set up from this point that fall within the 30 per cent minimum.
KKI Lawyers point out many of these trusts exist for reasons that have nothing to do with minimising tax, protecting “children with gambling addictions, beneficiaries with disabilities, spendthrifts… and those in abusive/controlling relationships”. For a beneficiary on a disability pension with no other income, the non-refundable tax credit offered under the new regime is of limited practical value, since there is no other tax bill for the credit to offset. The Budget also proposes an exemption for “vulnerable minors”, though the term is not yet defined.
What is happening to the capital gains tax discount?
From 1 July 2027, the 50 per cent capital gains tax (CGT) discount is proposed to be replaced with cost base indexation, alongside a 30 per cent minimum tax on real capital gains. Assets bought before 1985, which have historically sat outside the CGT system altogether, are proposed to be brought into it for gains that accrue from that date onward.
Exposure drafts of the CGT legislation are expected before the end of 2026, but the exact mechanics, transitional arrangements and final start dates are not yet settled.
Does the family home still escape capital gains tax?
Death itself is not treated as a disposal of an asset for CGT purposes. A beneficiary inherits a property or other asset without an immediate tax bill, and CGT only potentially applies if that asset is later sold. A family home held in a deceased estate can generally be sold free of CGT if the sale settles within two years of death.
Where things change is when a home is left to a testamentary trust rather than directly to a person. The Australian Taxation Office (ATO) is considering tightening the rules so that a home held this way could lose access to the main residence exemption unless the will specifically names a right of occupancy for a beneficiary. It is a detail easily missed in an older will, and one worth checking with the ATO or a solicitor given the position is not yet settled law.
It helps to remember an estate is rarely one single pool of assets. Superannuation and life insurance are generally paid according to a nomination made with the fund, sitting outside the will entirely. Jointly-held property usually passes automatically to the surviving owner. Trust and company assets are governed by their own succession arrangements rather than by the will. Only the fourth category, assets the will directly controls, is affected in the way described above.
Is a death tax coming to Australia?
No. Australia has no inheritance tax or death tax, and Treasurer Jim Chalmers has said plainly, “The Government won’t be pursuing or implementing an inheritance tax.”
What if the will was made years ago?
A complication sits with wills made by people who have since lost the legal capacity to update them. Those documents cannot be amended, which means some estate plans are locked into trust structures drafted under the old tax settings, with no way to adjust for the new rules.
A separate change restricts negative gearing to new-build residential properties, and this grandfathering does not pass to whoever inherits an existing negatively geared property on death. With these changes on the horizon, a Findex financial adviser told Yahoo Finance advisers are expecting a rise in what are being called “living inheritances” – families transferring wealth to children and grandchildren while everyone involved is still around to see it put to use, rather than waiting for it to pass through a will.
For a generation that has spent decades building what they will eventually leave behind, that shift points to a simple, human calculation: a solicitor’s review now can mean a gift given and enjoyed in person, rather than one left to be sorted out by rules still being written in Canberra.
