Nearly 70% in ‘double taxation’ confirmed in trust tax consultation paper

Based on her calculations, National Tax & Accountants’ Association senior advocate Robyn Jacobson (pictured right) said that the confirmation of double taxation in the consultation paper means the maximum tax rate would be raised to 69.71 per cent.

Jacobson noted that this double taxation is quite well known where there's a corporate beneficiary, because the corporate beneficiary will not be permitted to claim an offset, whether refundable or non-refundable.

“It's one thing to impose a minimum 30 per cent tax, and it would also be understandable to limit the tax to the top marginal rate of 47 per cent, but the consultation paper has now confirmed that the intent is to assess a corporate beneficiary on the gross amount of the trust income,” she said.

“I think a lot of focus has been on the double taxation for corporate beneficiaries, but … double taxation [will also result] where there is a chain of discretionary trusts involving three or more trusts.”

Also in conversation with Accountants Daily, Grant Thornton national head of technical tax David Montani (pictured, left) said that the minimum tax of 30 per cent on discretionary trusts treats a symptom rather than a cause.

“The underlying cause is our well-known over-reliance on income tax (and under-reliance on less economically damaging taxes such as the GST). That manifests in excessive use of trusts in income tax planning,” Montani said.

“The proposed 30 per cent tax on discretionary trusts is intended to move people away from using those trusts. Further, the denial of a tax credit for a corporate beneficiary produces instant double taxation, making the use of it unviable from day one,” he added.

“So, you can see how attacking the use of trusts is addressing the symptom rather than the underlying cause, being our over-reliance on income tax,” Montani said.

Montani noted that if the underlying cause of Australia’s unbalanced tax mix were addressed, trusts would feature less in tax planning; there would be fewer trusts and there would be fewer corporate beneficiaries.

“The reason for that is that there would be much less need for the kind of tax planning trusts are used for.  The reason for that is that a lot of people would be paying less income tax in the first place – replaced by paying more GST, [they can't] escape.”