Tax reform ‘more like a political talking point’

Chalmers said the minimum tax aligns with the marginal tax rate for workers on incomes between $45,000 and $135,000.

A range of trust types will be excluded, including fixed trusts, charitable trusts, special disability trusts, and superannuation funds, along with primary production income and certain income relating to vulnerable minors.

Deceased estates and discretionary testamentary trusts established for genuine testamentary purposes will also be excluded.

Following the introduction, accountants and tax specialists expressed their ongoing displeasure with the proposed tax reforms, highlighting in particular the high level of uncertainty it has inflicted, the woefully short consultation periods, and the potential compliance costs that could stem from these reforms.

Hodkinson Accounting principal Todd Hodkinson said he believes the legislation should be “scrapped”.

“Interestingly, this feels less like tax reform designed around a demonstrated economic problem and more like a political talking point that has been reverse-engineered into tax legislation,” he told Accountants Daily.

He said he believes the discretionary trust tax legislation adds no economic value, does not create jobs, improve productivity, or encourage investment.

“Instead, it forces perfectly legitimate family businesses to spend money on accountants, lawyers, valuations, and restructures simply to rearrange the legal boxes through which they already operate,” Hodkinson said.

He highlighted that the 30 per cent minimum tax policy has been retained, while the offset is still non-refundable.

“Corporate beneficiaries remain problematic, and genuine active trading businesses are still caught. The election may make the machinery more complicated. It does not make the underlying policy better,” he said.

Birchstone Legal Group associate director Tracey Dunn said that while some post-consultation amendments are welcome, including the commissioner’s discretion to disregard the automatic revocation of an excluded election trust (EET) election, the 30 per cent minimum tax legislation “remains uncertain, complex, and costly”.

Dunn said she was particularly concerned with the new requirement for trustees to notify the commissioner of an event that automatically revokes an EET election.

According to the legislation, an EET election is automatically revoked in several circumstances, including when the trust estate is wound up or vests in accordance with the trust deed, and when the trustee decides the EET election is to be in force for the year but fails to comply with requirements for payments to a beneficiary to be made consistent with any entitlements.

It states that if one of these events happens with respect to an EET election, the trustee must notify the commissioner that the event has happened in the approved form. This must occur no later than the earlier of the due date for lodgement of the trust estate’s return of income for the year of income in which the event happens, and the date of lodgement of the trust estate’s return of income for that year of income.

Failure to comply with this subsection may constitute a criminal offence against the Taxation Administration Act 1953.

“An offence under the TAA 1953 is an absolute liability offence that has potential criminal penalties under the Criminal Code (Cth),” Dunn told Accountants Daily.

“The same provision applies to the lodgement of income tax returns (and other documents), which is why the ATO can prosecute taxpayers for non-lodgement of tax returns.

“Small businesses that use trusts are more likely to make an EET election because of potentially lower implementation costs, yet small business owners often have the least access to specialist advice. Consequently, they are likely to be the most exposed to criminal penalties for inadvertent non-compliance.”

Dunn continued that the key concern is that the risk of a trustee inadvertently breaching the requirements of the EET election is high. Moreover, given the complexity of the law, trustee taxpayers may not be aware that there has been a breach and automatic revocation much later.

“The timeframe for notifying the commissioner is very narrow based on the legislation, so if there are any delays in meeting lodgement deadlines this could increase risk of taxpayers being exposed to criminal penalties,” she said.

“With the ATO taking a harder stance toward tax compliance, and an increase in criminal prosecutions for non-lodgement of income tax returns, I’m concerned that the EET revocation notification requirements could have significant consequences for, particularly, small business taxpayers.”

Dunn joined others in voicing concerns that taxpayers cannot plan with certainty as so much is left to ministerial instruments and future tranches of legislation.

“Trustees considering an EET election or the minimum tax rollover relief will require specialist legal advice on trust law implications and potential breaches of trustee duties. These measures cannot be considered in isolation as tax measures alone,” she said.

Make Accounting Great Again founder Joe Kaleb said fundamental issues around complexity, uncertainty, significant restructuring costs, and inadequate consultation remain unresolved.

“For example, CGT rollover relief does not necessarily extend to state stamp duty, while the fixed-distribution election could require existing trust deeds to be reviewed and amended, creating further legal costs and complications for family succession planning and the ongoing management of trusts,” he told Accountants Daily.

“This uncertainty makes it increasingly difficult for us to provide clients with clear, practical advice on their business and investment structures and long-term planning.”

Eagle Tax and Accounting director Nola Luyten said she is reluctant to make specific observations until the final legislation is released and passed.

“What is introduced as a Draft and what comes out in actual legislation by the time the Greens or independents make adjustments can be vastly different,” she told Accountants Daily.

“The government needs support from the Greens. They are not happy with the current bill, so who knows what deals will be done, on the four separate pieces of legislation. They have learnt by not putting them all in one.”

The Greens said they will move for a Senate inquiry into the discretionary trust tax legislation after accusing the government of watering down its own position before the legislation reached Parliament.