Ordinary families, vulnerable Australians, family farms and small businesses at risk from proposed trust tax changes, warns STEP

STEP Australia, the professional body representing specialists in trusts, estate planning and succession, is calling on the Australian Government not to introduce trust tax changes unless practical flaws are resolved.

Representatives from STEP will present evidence, concerns and workable solutions as part of the Senate Economics Legislation Committee inquiry today (November 5). The public hearing on the Treasury Laws Amendment, including the Minimum Tax on Discretionary Trusts Bill, will be livestreamed with STEP members, Jim O'Donnell TEP and Kimberley Martin TEP, expected to join the proceedings from 11:15-11:55am AEDT.

According to STEP, the trust tax measures currently before parliament could create unintended consequences for ordinary families, vulnerable Australians, family businesses and farming families unless critical changes are made to the legislation.

STEP has warned that millions of wills[1] will need to be rewritten, and the reforms will put people at risk of increased tax, disputes, litigation, and costly court applications, with businesses facing double taxation risks and expensive restructuring costs. As part of the government consultation process, STEP has submitted five formal submissions and written to the Treasurer Jim Chalmers, putting forward clear and practical recommendations.

STEP has been calling for targeted amendments to the proposed minimum 30% tax on discretionary trusts to help ensure that the reforms meet the government's tax integrity objectives without creating hardship for ordinary families and businesses.

Only minor technical amendments have been introduced so far, and the House of Representatives recently rejected Kate Chaney MP’s amendments that would address two significant concerns that STEP put forward. The Minimum Tax on Discretionary Trusts Bill has passed without the following amendments being made:  

• The ‘grandfathering’ of existing will provisions, which means that families are not forced to revisit older arrangements made before the new rules.
• Applying the testamentary trust exclusion to who actually benefits from the income, rather than disqualifying a trust simply because a will names a company or another potentially ineligible beneficiary.

Jim O'Donnell TEP, chair of STEP Australia, said,  "We support measures that protect Australia's tax system and revenue. However, the legislation should not inadvertently penalise families and businesses using trusts for legitimate reasons, such as supporting a disabled child, protecting vulnerable beneficiaries, or planning succession for a family business or farm.

"Many Australians will be surprised to learn that their existing wills and estate plans could be affected and left unprotected by these proposed changes. STEP has repeatedly put forward recommendations throughout the consultation process, and we are very concerned that many of them have not been adopted. We are asking that the government listen and consult with us on the technical aspects so that the critical amendments can be made before it is too late."

Concerns for vulnerable beneficiaries and existing wills

STEP is particularly concerned about the treatment of testamentary discretionary trusts, which are commonly written into wills, and come into effect after the person making the will has died.

Such trusts are widely used to provide long-term financial support and protection for children, surviving spouses and vulnerable beneficiaries such as adult dependents with disabilities. They can be particularly important where a family wants to provide a disabled person with housing and financial security after the death of a parent(s). Under the current legislation proposals, those death-related trust arrangements, such as insurance proceeds for adult dependents, will go unprotected and be subject to unexpected tax penalties.

The proposed legislation does not adequately protect existing wills containing standard testamentary discretionary trust clauses. Anyone who has signed a will containing clauses of the kind commonly used for decades (which permit companies or other trusts to benefit) may need their will reviewed and potentially amended. A person who dies before the reforms commence on July 1, 2028 may still be impacted if the testamentary trust is treated as ’established’ when estate assets are later transferred to it. The trust may lose the testamentary trust exclusion even if the company or other trust never receives a distribution or benefit. Their family could then face the 30% minimum tax on all relevant trust income, rather than only income provided to the company or other trust.

People who lose or have already lost testamentary capacity, including those living with dementia, cannot simply update their wills. A statutory will application may sometimes be available, but it is costly, time-consuming and uncertain. If the will maker has died, amendment is no longer possible. Their families may therefore face increased tax, reduced inheritances and the disruption of protective arrangements intended for children, disabled people and other vulnerable beneficiaries.

A STEP Australia pulse survey[2] of professionals working directly with affected trusts and families found that 80% regarded the reforms as very or extremely significant for their clients, while 77% said trustees could not realistically make informed decisions under the current drafting. Practitioners reported clients experiencing ’confusion and fear as to what to do’, uncertainty about whether their estate planning and asset holdings must be restructured, and concern that existing discretionary trusts may become ‘unworkable or unsustainable’.

Risks for family businesses and farming families

STEP has also raised concerns about the negative impact on family businesses and farming families. Family discretionary trusts are commonly used to hold family businesses, farms and investment assets. According to the Australian Chamber of Commerce and Industry (ACCI), nearly 240,000 small businesses[3] will be affected.

As well as restricting the flexibility that many families rely on to deal with changing circumstances such as illness, disability, financial hardship or changes in family participation in a business, the reforms will impact cashflow and could result in businesses having to cut staff and take out loans to pay for extra tax bills.

Businesses looking to restructure existing trust arrangements are expected to face expensive restructuring costs averaging about $11,000 for a business trust and $2,000 for a non-business trust, according to the Explanatory Memorandum. Those figures do not capture the full cost of State and Territory duty, Goods and Services Tax (GST) consequences, refinancing, lender consent, valuations or implementation risk.

It is estimated by CPA Australia[4] that businesses will face professional fees in the region of $2.8 billion to respond to the trust reforms, and ongoing compliance costs in the region of $221-$595 million a year.

In a move to provide some certainty some states have announced proposed responses, but the position remains fragmented and none of the announced relief is yet legislated.

The New South Wales Government has pledged relief for the initial decision to enter the Federal Government’s Excluded Election Trust regime. Victoria has announced a three-year duty moratorium for restructures qualifying for the Commonwealth rollover. Western Australia has indicated that relief may be considered once the final Commonwealth measures are known, while Queensland has indicated that duty may still apply.

The announced positions cover different transactions and do not provide nationally consistent protection. Families and businesses may therefore face different duty consequences depending on where their assets are located. For businesses working across multiple states, the tax situation will become increasingly complex and confusing.

Kimberley Martin TEP, Deputy Chair, STEP Australia Policy and Advocacy Committee, said, "Many Australian farms and family businesses have been built around trust structures that have operated successfully for decades.

"The government's integrity objectives can be achieved without forcing families into costly restructuring exercises, or disrupting long-established growth and succession plans."

Better targeting of the rules

STEP believes the legislation should focus on where trust income is actually distributed and who ultimately benefits. The professional body has proposed alternative approaches that would retain flexibility for genuine family arrangements while ensuring the minimum tax applies where benefits are directed outside the intended family group.

STEP is also calling on the government to:

• Protect trusts supporting people with disability and other vulnerable beneficiaries.
• Protect existing wills and estate plans by grandfathering relevant trust provisions in wills or codicils executed before July 1, 2028 (and not subsequently amended by a will or codicil executed on or after that date), supported by clear rules governing their establishment and administration.
• Provide workable restructuring relief that properly addresses duty, GST, financing costs, family business succession and the practical way in which family assets are held and transferred.

For further details on STEP’s concerns, including those outlined in its latest submission, visit https://stepaustralia.com/advocacy-and-policy-submissions-in-australia

REFERENCES

[1] According to independent Censuswide research commissioned by STEP, 63% of adults surveyed in Australia have wills (based on a survey of 2,000 adults in Australia). This figure is the inverse of the answer option ‘I don’t have a will’ (37.05%). This research took place December 12, 2025 to January 2, 2026. Censuswide abides by and employs members of the Market Research Society and follows the MRS code of conduct and ESOMAR principles. Censuswide is also a member of the British Polling Council.

[2] Findings so far (based on 30 respondents as of November 4, 2026) from a survey being conducted by STEP Australia.

[3] Australian Chamber of Commerce and Industry (ACCI).

[4] CPA Australia estimates that the professional advice needed to respond to the trust reforms will cost $2 billion to $2.8 billion, before any restructuring, implementation or state duty costs. It estimates ongoing compliance costs of $221 million to $595 million a year, compared with Treasury’s estimate of $48 million.

About STEP

STEP is the global professional association for practitioners who specialise in family wealth and succession planning. STEP has more than 23,000 members in 96 countries. STEP works to improve public understanding of the issues that families face in this area and promotes education and high professional standards among its members. STEP members help families plan for their futures, from drafting wills to issues surrounding international families, protecting the vulnerable, family businesses and philanthropic giving. Find out more at www.step.org

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