New tax treatment of income distributions from testamentary trusts to minors

July 9, 2020

New legislation has recently been enacted that changes the taxation treatment of distributions of income from testamentary trusts to minors.

Previously income from property that did not form part of a deceased estate could be excepted trust income for the purposes of Division 6AA and taxed at normal adult rates rather than the higher tax rates that generally apply to minors.

This new change means that only property transferred to the testamentary trust from the deceased’s estate or from property that represents an accumulation of income from property from the deceased’s estate will be excepted trust income.

The new law will apply to property acquired by or transferred to the trustee of a testamentary trust estate on or after Monday 1 July 2019.