WOLLONGONG – Prime Minister Anthony Albanese has indicated that the Australian government is open to altering proposed tax changes to discretionary testamentary trusts following political backlash and public scrutiny.
The potential for adjustment comes after the government’s budget proposed a new tax framework that has been characterized by the opposition as a “death tax.” The Prime Minister’s comments signal a willingness to review the specifics of the proposal before it is codified into law, amid concerns from advisers, accountants and families who use trusts as part of their estate planning.
Proposed Trust Tax Alignment
The government’s budget proposal seeks to implement a 30 per cent tax rate across all discretionary trusts, including testamentary trusts that are currently able to access marginal tax rates for certain beneficiaries. The stated objective of this change is to align the taxation of earnings derived from investments with standard income tax structures and close what Treasury has described as a preferential treatment of trust income compared with wages and salaries.
Testamentary trusts are financial vehicles created within a person’s will. They are designed to manage assets and the resulting income for beneficiaries after the grantor’s death, often to provide ongoing support for children, dependants with disability, or to preserve family businesses. Current data indicates there are approximately 10,500 such trusts operating within Australia, making the proposed reforms a targeted but highly sensitive element of the broader budget package.
The changes would sit alongside Australia’s existing federal tax architecture, which does not impose a broad-based inheritance tax but taxes income under the Income Tax Assessment Act. Any recalibration of testamentary trust rules would therefore be implemented through amendments to the income tax law rather than the creation of a standalone estate or succession tax.
Government Response to “Death Tax” Claims
Speaking in Wollongong, Albanese rejected the framing of the policy as a levy on inheritances, attributing the controversy to inaccurate reporting and political branding by opponents.
“Let’s be very clear that we’ve said, when it comes to some of the misreporting that’s there, we’re not interested and there’s no measures in there that are going to hurt inheritances,” Albanese said.
The Prime Minister emphasized that the government intends to “work through the legislation” to ensure the policy achieves its goals without unintended consequences for beneficiaries, particularly minors and vulnerable dependants. Senior ministers have previously argued that higher, uniform taxation of trust income is aimed at curbing aggressive tax planning rather than penalising ordinary families.
Tax practitioners, however, warn that the detail will determine whether the measure is experienced by households as a de facto inheritance impost. The government’s openness to amendments is likely to focus on carve-outs or concessions for specific categories of beneficiaries, as well as transitional rules for existing trusts.
Legislative Timeline and Consultation
The transition from budget announcement to active law involves several procedural steps, including the drafting of legislation by the Treasury and subsequent debate and voting in both the House of Representatives and the Senate. Any bill that passes both chambers would then require royal assent before taking effect, with commencement dates and transitional arrangements set out in the legislation.
The government has outlined the following timeline for the trust tax changes:
- Legislation Introduction: Scheduled for the second half of the year, as part of the government’s post-budget tax and revenue program.
- Consultation Phase: A formal period for feedback and review will occur prior to the finalization of the laws, likely including input from professional bodies, community legal centres and stakeholder groups representing families and small business.
“So we’ll work through the legislation we’ve said will be introduced in the second half of the year. On trusts, there will be a consultation period about that, and we made that clear on budget night,” Albanese said.
The consultation process will be managed through the Treasury and the Australian Taxation Office’s existing public consultation channels, giving affected taxpayers and industry groups an opportunity to scrutinise draft provisions and raise concerns about compliance costs and the treatment of existing arrangements. For the government, the outcome will test its capacity to balance revenue integrity with its stated commitment not to introduce a formal inheritance tax – a pledge that has framed both the policy design and the political contest around the reforms.
