Labor Pushing For Trust Tax Reform

A while ago Bill Shorten proposed the implementation of a 30% tax on distributions from discretionary trusts to beneficiaries who are over 18 years of age.

RMIT University recently released a report which seemed to show that tax avoidance was a big issue with trusts.  Shadow Treasurer Chris Bowen jumped on this to imply that tax loopholes, of which splitting income with trust beneficiaries was one, were costing the budget “billions of dollars.”

It should be noted that the proposed 30% tax wouldn’t apply to Fixed Trusts but most trusts setup these days aren’t Fixed Trusts.

It’s very evident many small businesses and SMSF’s will end up paying more tax as a result of this proposed reform, from those family businesses that distribute profit to members on an average tax rate below 30%, to SMSF’s who currently pay between 0% or 15% tax depending on whether they are in accumulation or pension mode, suddenly having 30% tax deducted from distributions due to them being invested in a discretionary or non-fixed trust.

Thus caution should be exercised and advice sort in relation to setup and structuring of entities right now, or investments in trusts made by SMSF’s, particularly given an election is just around the corner.

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