Trusts Reform

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Australia has a two-class tax system where some people have the financial means to access generous deductions and subsidies to lower their tax, and others do not.

Trusts can be legitimately used by individuals and businesses for several reasons, including asset protection. However, discretionary trusts also have attractive tax advantages and are used by high-wealth individuals to minimise their tax obligations.

The practice of “income splitting” through discretionary trusts is used frequently by wealthy Australians to minimise their tax.

Income splitting was partly addressed back in the late 1970s and early 1980s by then-Treasurer John Howard who addressed inequities in the tax system by making it harder to distribute Trust income to minors (i.e. those aged below 18). But Labor will go further. A Shorten Labor Government will introduce a new 30 per cent standard minimum rate of tax for discretionary trust distributions to mature beneficiaries (aged over 18).

Labor’s policy is well-targeted to address tax minimisation through income splitting. These reforms will not affect 98 per cent of all individual taxpayers in Australia.

Labor is for better schools and hospitals, not better tax loopholes for those people who are already well-off.

Labor’s policy will only apply to discretionary trusts. It will not apply to non-discretionary trusts, including:

  • Special disability trusts.
  • Testamentary trusts (Deceased estates).
  • Fixed trusts.
  • Cash management unit trusts.
  • Fixed unit trusts.
  • Public unit trusts (listed and unlisted).

Labor’s policy will also not apply to:

  • Farm trusts.
  • Charitable and philanthropic trusts.

The policy will come into effect on 1 July 2019.

This policy will save around $7.7 billion over the forward estimates.