Pitcher Partners proposes ‘withholding model’ alternative to Treasury’s regime

As reported by Accounting Times, Pitcher Partners said family-owned businesses were navigating a more complex environment by strengthening governance, succession planning, and strategic structures to preserve long-term growth and generational wealth amid evolving economic and regulatory pressures.

A multitude of taxpayers have developed their financial strategies and carried forward losses based on the existing capacity to offset income across their broader family units.

The model presented by Treasury could result in tax liabilities being triggered prior to the economic realisation of these accumulated losses, the firm said.  

Consequently, these losses might be depleted without providing the financial benefit permitted by the current legislative landscape. 

Furthermore, concerns were raised that widespread restructuring would be required. 

Pitcher Partners observed that the current draft serves as a strong catalyst for businesses and investment entities to pivot away from discretionary trust frameworks. 

Although Treasury suggested rollover relief, Pitcher Partners noted that numerous groups remain hindered by tangible obstacles, including stamp duty obligations, financing complexities, trust law impediments, and substantial administrative outlays.

The final concern raised in the submission was that the proposal adopted a particularly harsh approach to corporate beneficiaries, noting that the inability to access minimum tax offsets can lead to effective tax rates that make using such beneficiaries prohibitive. 

As such, following these concerns, Pitcher Partners created numerous proposals for Treasury: 

A withholding model rather than a new trust tax regime

The submission detailed an alternative framework based on a withholding model, designed to specifically target the identified integrity issue – income splitting via discretionary entities – while avoiding the substantial complexity, mandatory restructuring, and adverse outcomes inherent in the current Treasury proposal. 

Pitcher Partners' tax partner, Alexis Kokkinos, highlighted the importance of implementing a reliable withholding model. 

“If Treasury proceeds with a model broadly consistent with the Withholding Model, we expect the reform would receive broad support from stakeholders and that taxpayers, advisers and industry participants would work constructively with Treasury and Government to facilitate its implementation,” Kokkinos said. 

Targeting the relevant integrity concern

According to the submission, a withholding model would be reinforced by a specific integrity measure designed to reclassify arrangements that mirror discretionary distributions as such. 

Such a mechanism is intended to prevent taxpayers from engineering discretionary results by deploying different unit classes or alternative legal frameworks that yield identical economic consequences.

Character retention rules

Pitcher Partners noted that the objective of this mechanism was to ensure income sourced from discretionary distributions maintains its original nature as it flows through a series of interposed corporate or trust entities.

Such a provision is designed to prevent taxpayers from circumventing withholding obligations by directing trust income through alternative legal structures before its final distribution to individual beneficiaries. 

Preserving existing tax losses

According to Pitcher Partners, safeguarding the financial utility of current carried-forward losses is a vital transitional challenge that the accounting firm believes Treasury's model fails to address adequately.

“If the Treasury Model is adopted in substantially its current form, we expect significant opposition from the business and investment community given the extensive restructuring requirements, loss utilisation concerns and punitive treatment of corporate beneficiaries. We therefore strongly encourage Treasury and Government to consider the Withholding Model as the preferred pathway for reform,” Kokkinos warned. 

Corporate beneficiaries

Regarding corporate beneficiaries, Pitcher Partners recognised that rather than imposing a second layer of tax, integrity concerns would be addressed through the character retention rule and the existing Division 7A framework. 

Simpler and more sustainable reform

In Pitcher Partners’ view, a withholding model can provide a simpler, more targeted, and more efficient administrative framework, drastically minimise the volume of necessary legislative modifications, and ensure the integrity mechanism remains focused on the specific fiscal arrangements identified by Treasury as problematic.