Highlights

  • For families planning an estate, or managing one, it matters which gains will be caught.
  • Treasury's draft rules would exempt gains distributed through testamentary trusts, deceased estates and special disability trusts.
  • The bill the Treasurer introduced on Wednesday covers the CGT rules for "certain trust structures", so the detail now counts.
  • The minimum tax on capital gains is already law under the Tax Reform No.

Draft rules would exempt capital gains distributed through testamentary trusts, deceased estates and special disability trusts from the 30% minimum tax starting in July 2027. Heirs who sell inherited assets in their own name are not covered. From 1 July 2027, resident individuals face a new 30% minimum tax on capital gains accruing from that date.

What the draft exemption covers

It is a minimum tax, not a discount, and applies to gains accruing from 1 July 2027. Treasury's second-tranche exposure draft, released on 4 August, would add new section 119-20. It exempts from the minimum tax capital gains distributed through: testamentary trusts, meaning trusts established under a person's will, with the definition tied to paragraph 102AG(2)(a) of the Income Tax Assessment Act 1936 deceased estates, during administration Treasury's announcement described the measure as one that "exempts gains distributed to beneficiaries of genuine testamentary trusts, deceased estates and special disability trusts". The explanatory material says this follows the Government's 18 June 2026 announcement that testamentary trusts would be excluded from the separate minimum tax on discretionary trusts. An exempt gain is still taxable. The beneficiary still includes it in assessable income at ordinary rates. What changes is that the 30% minimum does not apply to that gain. Gains that accrued before 1 July 2027 are outside the minimum tax in any case, so the exemption matters most for assets that grow after that date.

The limits: estate assets, held inside the trust

The exemption is not a blanket carve-out for anything connected to an inheritance. Two limits stand out in the draft. First, an integrity rule borrowed from the existing tax treatment of testamentary trusts restricts the benefit. Only income from property transferred from the deceased estate, and profits from investing that property, qualify. Second, the exemption stops at the trust's edge. Treasury's material says gains made outside the trust, including when a beneficiary later sells an asset received from the trust, are not exempt. That is why the headline question matters. On the draft's wording, a property sold by a testamentary trust or an estate can be covered. Where the same property passes to an heir and the heir sells it in their own name, the gain is generally outside the exemption and the minimum tax can apply.

How it could play out for one family

Hypothetical example: A mother dies in 2028. Under her will, her investment property and a share portfolio pass into a testamentary trust for her adult children. All figures below are illustrative assumptions. In 2030 the trust sells the property, making a capital gain of $150,000 that accrued after 1 July 2027. It distributes that gain to her son. On the draft rules, the gain is exempt from the minimum tax, although the son still pays tax on it at his ordinary rates. Suppose the trust also made a $30,000 gain that year on shares it bought with money the son later added to the trust. That money did not come from his mother's estate. On the draft integrity rule, that $30,000 would not qualify, so only $150,000 of the $180,000 in gains would be covered.