Trust tax proposal built on ‘false assumption’: Pitcher Partners

However, Kokkinos said this approach ignores the commercial realities faced by many trusts, particularly in the property sector. 

Whilst income tax and CGT consequences may be mitigated through rollovers, stamp duty remains a substantial and often prohibitive cost.                                                  

In states such as Victoria and NSW, transferring commercial or development property can give rise to stamp duty liabilities in the millions of dollars. 

Another issue Kokkinos raised is that legitimate businesses are penalised, with no path to exit. 

Ultimately, this creates a clear inequity in how the policy operates. Legitimate operating groups are penalised not because they are engaging in aggressive or contrived arrangements, but more so because they are locked into structures that cannot be unwound without significant commercial harm.                                        

In these circumstances, the minimum tax would operate less as an integrity measure and more as a blunt penalty imposed on taxpayers who are least able to respond.                                   

Most notably, the government has released detailed proposals, assuming restructuring will occur rather than consulting on whether it is available across different industries.                                                    

Over time, Kokkinos notes that such a vague measure will likely reduce business efficiency, reduce investment and development activity, and have broader negative effects on economic activity as a whole. 

Further, it was outlined that a company-style regime may be a more coherent alternative, which Kokkinos highlights as a particular concern, especially given that alternative policy approaches were available. 

Under this model, trusts would be permitted to form tax consolidated groups, be taxed at the corporate rate, and dispense with trust distributions altogether. To the extent that the regime was not embraced by a taxpayer, the minimum tax could be applied. 

Kokkinos said this alternative would have been beneficial, as it directly addressed concerns around income splitting while preserving existing legal structures and avoiding the imposition of stamp duty.    

Such an approach would align the tax outcome with the underlying commercial reality, rather than forcing structural change purely for tax reasons.    

It is noted that the issue is further compounded by the ATO’s established position on trust corporatisation. For many years, the ATO has indicated that it intends to implement a ruling to deny the availability of successive rollovers involving a move from a trust to a company, which is followed by entry into a tax consolidated group.  

The ATO’s published materials indicate that rollovers under Subdivision 122-A followed by tax consolidation utilising Subdivision 124‑M are ineffective, and that anti‑avoidance provisions may also be applied.                         

Private groups commonly use trusts and single‑purpose vehicles for commercial, financing, and asset-protection purposes, particularly in property development.                          

Kokkinos said a coherent policy framework should support those groups to transition into corporate tax regimes where appropriate, rather than imposing tax penalties while denying workable pathways to restructure.                     

Pitcher Partners ultimately noted that the minimum tax announcement highlights a broader issue, and that effective reform in this area requires genuine consultation with the private sector and co-ordination between Treasury and the ATO.