The SMSF Association has alerted the sector to an estate planning issue that may arise as a result of the changes to the rules around the taxation of discretionary trusts announced in the federal budget last Tuesday night.
The 2026 budget papers confirmed a 30 per cent tax will be levied on discretionary trusts from 1 July 2028 but under the new rules income from the assets of a testamentary trust as at 7.30 pm on 12 May 2026, the time when the budget was handed down, will be excluded.
However, SMSF Association head of policy and advocacy Tracey Scotchbrook noted this measure may still have implications for some common estate planning strategies.
“What is unclear is what’s going to happen to testamentary trusts that are discretionary post budget night. While there seems to be an intent for existing arrangements to be held under the old tax regime, we don’t know what that means looking forward,” Scotchbrook told attendees of a post-budget webinar for the industry body’s members today.
“So for your estate planning for your clients this is going to be an important one to keep an eye on,” she suggested.
She pointed out the government has expressed its intent to provide rollover relief spanning a three-year period for taxpayers who elect to restructure their discretionary trust arrangements including income tax and capital gains tax relief but noted there are no details as to how this would be conducted.
Scotchbrook did acknowledge though, this could be another opportunity for SMSFs to provide a greater tax management role for individuals.
“We don’t know what that will look like. Whether there are opportunities perhaps for SMSFs to play a role, particularly around business real property, [or if] strategically that will be something that clients will be able to consider or if [it] included in those measures [we don’t know],” she said.
“We know it doesn’t work in every circumstance either, and it may not be appropriate, but it does open up the door potentially to some broader structural and planning opportunities,” she indicated.
The impact of the federal budget on SMSFs will be examined in more detail at the SMSF Professionals Day 2026 co-hosted by selfmangedsuper and Accurium. Click here to secure your seat at the event.
Darin Tyson-Chan
Editor
Darin is the founder and publisher of Benchmark Media, an independent publishing house whose mastheads include financialobserver, selfmanagedsuper and smstrusteenews. He has been covering the financial services space for over a decade and in this time he has worked for a variety of trade publications. Darin has also written for the Money section published in The Sydney Morning Herald and The Age.
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