Federal Budget carve‑outs: key takeaways for clients
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Key updates |
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On 18 June 2026, the Federal Government announced targeted tax concessions following consultation on its 2026–27 Budget measures. These updates refine the position announced on 12 May 2026, as outlined in Federal Budget 2026–27: key tax changes and what clients need to know.
The core framework remains. The changes introduce targeted carve‑outs in response to stakeholder feedback. The measures are not yet law and remain subject to further consultation and parliamentary process.
What has changed?
1. Testamentary trusts: exemption from minimum tax confirmed
The Government has confirmed:
“In response to targeted consultation following the Budget, the Government will exempt income from all types of discretionary testamentary trusts from the minimum tax provided they are established for genuine testamentary purposes.”
This is a material shift from the Budget position.
The exemption is qualified:
“The exclusion will be limited to income from assets of the deceased estate. For discretionary testamentary trusts established on or after 1 July 2028, the exclusion will only apply to trusts that can only benefit individuals and income tax exempt entities."
What this means for clients:
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testamentary trusts are not subject to the proposed 30 per cent minimum tax
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existing estate planning strategies remain viable, removing the risk of a mismatch between asset protection outcomes and tax outcomes
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for testamentary trusts taking effect from 1 July 2028, broad beneficiary classes including companies or other entities may not qualify
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wills containing testamentary trusts should be reviewed once legislation is introduced to ensure they align with the new requirements and preserve access to the exemption.
Key risk area:
A testamentary discretionary trust may fall outside the exemption where it:
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derives income from new or reinvested assets, or
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benefits entities beyond individuals and charities.
What remains uncertain:
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how the exemption will operate in practice
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how asset tracing and reinvestment will be treated
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how beneficiary restrictions will apply.
The Government has confirmed that further detail will follow:
“This will include the release of a consultation paper on implementation of the minimum tax on discretionary trusts in the coming weeks which will provide further details on the proposed implementation approach.”
The detail of that consultation will be critical in determining how the exemption operates in practice.
Action:
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review existing wills and testamentary trust provisions
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avoid broad discretionary beneficiary classes without considering the restriction
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keep drafting under review pending legislation.
2. Small business Capital Gains Tax (CGT) concessions: expanded access
The Government has confirmed:
“an increase to the turnover threshold for the existing small business 50 per cent active asset CGT reduction from $2 million to $10 million.”
All existing small business CGT concessions are retained.
What this means for clients:
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more businesses will qualify for the 50 per cent active asset reduction
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eligibility aligns with broader small business thresholds
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Division 152 becomes a more widely available exit planning tool.
Action:
Businesses with turnover under $10 million should review eligibility for CGT concessions on future disposals.
3. Deductible gifts and donations: preserved
The Government has confirmed that deductible gifts and donations will reduce capital gains subject to the minimum tax.
What this means for clients:
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the tax benefit of charitable giving is preserved
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donations of appreciated assets remain effective within the new regime.
Action:
Existing strategies remain appropriate. No immediate change required.
4. Start‑up concession: new regime under consultation
The Government has released a consultation paper on a proposed Innovative Business CGT Concession (IBCC).
The proposal would:
“provide a 50 per cent CGT discount to early-stage investors including founders and employee share scheme participants of innovative start-up businesses.”
The concession allows eligible taxpayers to apply a 50 per cent discount on gains from qualifying shares, as an alternative to indexation and the 30 per cent minimum tax. Eligibility is limited to early‑stage, unlisted companies, subject to turnover, age and holding period requirements, and a $10 million lifetime cap. The concession applies to new equity issued after 30 June 2027, with transitional rules for existing shares where eligibility conditions are met.
What this means for clients:
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targeted relief is being developed for early‑stage investment
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the concession is designed for high growth, low cost base investments
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the concession is clearest for founders and employees who hold direct interests in early‑stage equity
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access depends on satisfying strict eligibility and innovation criteria
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taxpayers will need to choose between the discount or indexation with the minimum 30% tax.
What remains uncertain:
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how the innovation test will operate in practice
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whether venture capital and institutional investors are within scope
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how the concession interacts with other CGT concessions.
Action:
Do not rely on the concession until the final design is confirmed and monitor the consultation process closely: Capital gains tax reforms – arrangements for innovative start-ups - Consult hub.
What clients should do now
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treat these announcements as policy direction, not enacted law
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review existing structures, but do not implement changes based on announcements alone
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keep estate planning under review, particularly testamentary trust drafting
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monitor legislation and consultation outcomes closely.
While these announcements provide welcome clarification, the measures remain subject to legislation and further consultation. Clients should avoid making structural changes based on the announcements alone, but should use this period to review wills, trust structures, business sale plans and early-stage investment arrangements.
We will provide a further update once the consultation paper on the implementation of the minimum 30% tax on discretionary trusts is released in the coming weeks and the implications are clearer.
For further information, contact the author.
Author: Lisa To
This publication is intended as a source of information only. No reader should act on any matter without first obtaining professional advice.