The Government intends to limit the concessional tax rates available to minors receiving income from testamentary trusts to income derived from assets that are transferred from the deceased estate or the proceeds of the disposal or investment of those assets.

Currently, income received by minors from testamentary trusts is taxed at normal adult rates rather than the higher tax rates that generally apply to minors. The Government is concerned that some taxpayers are inappropriately obtaining the benefit of this lower tax rate by injecting assets unrelated to the deceased estate into the testamentary trust.

While the rules already contain integrity provisions aimed at limiting the scope for inappropriately boosting the income earning capacity of testamentary trusts, this measure clarifies that minors will be taxed at adult marginal tax rates only in respect of the income a testamentary trust generates from assets of the deceased estate (or the proceeds of the disposal or investment of these assets).

This change was introduced into Parliament but has not yet been enacted. If enacted, the measures will apply to assets acquired by or transferred to the trustee of the testamentary trust estate on or after 1 July 2019.