In 2025, Australian families with significant wealth are facing increased scrutiny on estate planning and intergenerational wealth transfers. One term making headlines is the Generation-Skipping Transfer Tax (GSTT), a concept more familiar to Americans but now gaining relevance in Australia. While Australia does not have a formal GSTT like the United States, recent policy discussions and global trends mean local high-net-worth families should pay close attention. Here’s what you need to know and how to navigate the changing landscape.
Understanding the GSTT Concept—and Why It Matters in Australia
The Generation-Skipping Transfer Tax is designed to prevent families from avoiding estate or inheritance taxes by transferring wealth directly to grandchildren (or anyone more than one generation removed), bypassing their children. In the US, the GSTT operates alongside estate and gift taxes, with a high exemption threshold and a steep tax rate on transfers above that limit.
While Australia abolished its federal inheritance and estate taxes in the 1970s, recent reviews by the Productivity Commission and ongoing parliamentary debates have revived conversations about taxing intergenerational wealth. The global trend towards closing tax loopholes and the 2025 federal budget’s focus on wealth inequality mean that Australian families should not ignore the GSTT concept:
- Inheritance and Wealth Transfer Reviews: The Productivity Commission’s 2024 report recommended new approaches to taxing large inheritances, especially those skipping generations.
- ATO Focus: The Australian Taxation Office (ATO) has increased audits on trusts and complex family arrangements, targeting schemes that mimic GSTT avoidance.
- Global Influence: With OECD countries tightening inheritance tax rules, Australia is under pressure to reconsider its stance—potentially introducing GSTT-style measures in the future.
How Generation-Skipping Transfers Work in Practice
In Australia, the absence of a formal GSTT means families can, for now, transfer assets to grandchildren without a specific tax penalty. However, certain structures and gifts can still trigger tax consequences:
- Trusts: Family trusts remain a popular vehicle for wealth transfers, but the ATO’s 2025 crackdown targets distributions to minors and distant relatives, especially where tax minimisation appears to be the main goal.
- Superannuation Death Benefits: Super funds passed to adult children or grandchildren may incur taxes, depending on their dependency status and the fund’s composition (taxable vs. tax-free components).
- Capital Gains Tax (CGT): Gifting assets such as property or shares to grandchildren triggers a CGT event, with the original owner liable for capital gains at the time of transfer.
For example, if a grandparent gifts an investment property to a grandchild, the grandparent may face a hefty CGT bill. If the transfer is made via a testamentary trust after death, the trust structure can provide some tax flexibility but will attract close ATO scrutiny in 2025.
Policy Updates and Estate Planning Strategies for 2025
With the federal government’s 2025 budget including a taskforce to explore ‘future-proofing’ the tax base, speculation is rife that some form of GSTT—or broader inheritance tax—could return. Here’s how to plan ahead:
- Review Trust Structures: Ensure trust deeds are up to date and distributions align with genuine family support, not just tax minimisation.
- Document Intent: Keep clear records of the purpose behind gifts or asset transfers, especially for large or non-traditional arrangements.
- Consider Testamentary Trusts: While these trusts can offer tax advantages for minor beneficiaries, they must be structured carefully to avoid ATO challenges.
- Monitor Policy Developments: The next 12-24 months could see draft legislation or new reporting requirements for significant wealth transfers.
According to estate law specialists, families should also prepare for new ATO reporting standards coming into force in late 2025, which may require disclosure of intergenerational transfers above certain thresholds.
Looking Ahead: Should Australians Worry About GSTT?
While there’s no GSTT on the books in Australia—yet—the writing is on the wall for families seeking to transfer substantial assets across generations. The combination of rising house prices, growing superannuation balances, and mounting political pressure to address wealth inequality means that GSTT-style taxes could be part of Australia’s tax landscape in the near future.
Proactive estate planning, with a focus on transparency and compliance, will be key to preserving family wealth and avoiding nasty tax surprises down the line. Australian families should work closely with financial and legal advisors to keep their plans robust and future-proof as the regulatory landscape evolves.
