Booklet: Special Disability Trusts (SDT) (Chapter 9 – Are there beneficial taxation consequences?)

Booklet: Special Disability Trusts

Below is Chapter 9 of our ‘Special Disability Trusts’ booklet. To read the other chapters of our booklet, click the links below:

Please note that the information in this booklet is current as at the 2026/2027 financial year.

A trust is a separate legal structure in relation to taxation. Trustees have an obligation to submit tax returns for the SDT fund.

However, SDTs are not subject to the higher income tax rate which normally applies to trusts. Further, the Federal Government has announced that SDTs will be exempt from proposed trust taxation reforms which introduce a 30% minimum tax rate to discretionary trusts from 1 July 2028. Currently, an SDT’s unexpended income is taxed at the beneficiary’s personal income tax rate rather than at the highest marginal personal tax rate. For this reason, the beneficiary of an SDT is treated as though they are presently entitled to all of the net income of the trust. We expect SDTs will continue to be taxed in this way after the proposed trust taxation reforms come into effect.

The trust taxation changes announced by the Federal Government are not yet law, so we anticipate some further clarification about the finer details of these reforms in the 2026/2027 financial year.

If the principal beneficiary of the trust is required to lodge an income tax return, the amount of the net income of the special disability trust should also be included in their individual tax return. Any tax paid by the trustee of the special disability trust should be claimed as a credit on the individual tax return, which ensures there is no double taxation.

A Capital Gains Tax exemption applies for all CGT assets (property contributions) voluntarily transferred into a special disability trust for no value.

A CGT exemption also applies to the intended recipient of the principal beneficiary’s main residence after their death, where the intended recipient’s ownership interest ends within two years of the principal beneficiary’s death. This exemption requires that at the time of the principal beneficiary’s death the dwelling was the deceased’s main residence, the dwelling was not used to produce assessable income and the trust was an SDT.

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The information contained in this post is current at the date of editing – 28 July 2026.

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