iscover State govt pushback likely on trust tax stamp duty
BusinessThe director of an accounting firm has called out the federal government for “prescribing” stamp duty implications of its trust tax reforms on states and territories.
AH Jackson & Co director Matthew Smith said the federal government could expect states and territories to push back on its claim that making an excluded election trust (EET) is not expected to trigger state and territory stamp duties.
In its draft legislation to implement core components of the 30 per cent minimum tax on discretionary trusts, the government proposed the option of enabling a trust to be exempt from the minimum tax if they elect to make fixed distributions to pre‑nominated beneficiaries, as an alternative to roll‑over relief.
The government said the election would not require a restructure and is not expected to trigger state and territory stamp duty.
“It’s interesting that a federal Labor government is going to try and prescribe to a liberal state government in Queensland what they should and shouldn’t be stamping in terms of duty,” Smith told Accountants Daily.
“As an adviser, I think we would need to tread very carefully around what we’re suggesting will and won’t have stamp duty, because I think it’s potentially a resettlement.”
It was recently reported that NSW Treasurer Daniel Mookhey said the state revenue office is assessing whether trusts will be exempt from stamp duty, while Queensland is also deliberating on the matter.
CPA Australia tax lead Jenny Wong told Accountants Daily last week that the accounting body has written to all the states and territories asking them to resolve the stamp duty issue that could arise when making the fixed distribution election.
Smith – who recently joined AH Jackson & Co. – underscored that accountants must wait for the final legislation around the minimum tax on discretionary trusts before implementing any changes for their clients.
He also noted that the devil is in the detail and interpretation of the legislation would be key, and as such, he would consult with trusted legal experts on their interpretation of the law.
“The ones I have spoken to are suggesting that they think it could be trust resettlements, and therefore there could potentially be stamp duty obligations, at least in Queensland,” Smith said.
Smith said the government could have proposed the fixed distribution alternative to rollover relief because it believed this would prevent asset owners from establishing new entities and restructuring as a company.
“But I think they probably haven’t considered the full gamut of implications of doing that,” he said.
“Do I think that the majority of discretionary trusts will take up that offer to move to fixed entitlements? I would be very surprised.”
Commenting on his current approach with his clients, Smith said that he is not in a position to provide formal advice or recommendations as the government has continued to issue draft legislation with amendments.
Instead, he is having high-level, one-on-one conversations with his clients around possible adverse impacts, including the likelihood of them paying more tax.
“We tell them that they're likely going to have more compliance costs over the next 12 to 24 months, which could potentially involve some strategic restructure and advice,” Smith said.
“They may need valuations and other considerations such as resetting cost bases. There’s plenty to talk about but unfortunately, we cannot provide formal advice and implement strategies until we see the final legislation.”
Smith advised accountants to be “on the front foot” and engage with clients and undertake some modelling so they understand the potential short and medium-term tax implications of the incoming changes for their business.
“From there you can make an informed decision about the appropriate restructure options and strategies,” he concluded.
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