As outlined in our earlier article titled Taxation of Testamentary Trusts, income received by a child beneficiary of a Testamentary Trust is normally taxed at adult rates (section 102AG Income Tax Assessment Act 1936).
In the budget delivered on 8 May 2018 a budget measure 2018 – 19 – Part 1: Revenue Measures – Tax Integrity — improving the taxation of testamentary trusts, it was stated:
“From 1 July 2019, the concessional tax rates available for minors receiving income from testamentary trusts will be limited 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. However, some taxpayers are able to inappropriately obtain the benefit of this lower tax rate by injecting assets unrelated to the deceased estate into the testamentary trust. This measure will clarify that minors will be taxed at adult marginal tax rates only in respect of income a testamentary trust generates from assets of the deceased estate (or the proceeds of the disposal or investment of these assets).”
It is expected that legislative changes to section 102AG will be attempted to be implemented in due course by the Federal Government.