According to a new costing by the Parliamentary Budget Office, Labor’s proposal will claw back $7.69 billion worth of revenue over the next three years and $26.9 billion over the next decade.
The proposal to introduce a new standard minimum rate of 30 per cent on discretionary trusts for anyone over the age of 18 was first raised by Labor two years ago, with the policy estimating to save around $4.1 billion over the forward estimates at the time it was announced.
“The fact is that the cost to the budget of income splitting through discretionary trusts has blown out,” shadow treasurer Chris Bowen said.
“The practice of income splitting is used frequently by wealthy Australians to minimise their tax.”
According to Labor, its policy will only apply to discretionary trust and will not apply to special disability trusts, testamentary trusts (deceased estates), fixed trusts, cash management unit trusts, fixed unit trusts and public unit trusts (listed and unlisted).
There will also be a carveout for farm trusts and charitable and philanthropic trusts.
Labor’s policy has not been well received by the industry, with Chartered Accountants Australia and New Zealand tax leader Michael Croker arguing that the small business clients who regularly used such structures were set to be negatively impacted.
“I think Labor has positioned itself, in their eyes, as the party to address tax planning arrangements that are used by higher wealth individuals, but not all small businesses are run by high-net-wealth individuals; in fact quite the opposite,” Mr Croker said.
“They want clear communication to the electorate to say that we are going to be tough on these people who use discretionary trusts, we are going to be tough on these people who get refunds of imputation credits, we are going to be tough on people who pay tax agent fees greater than $3,000, and according to them, most of the people impacted are high-wealth individuals.”
Earlier this week, Labor revealed new costings around its plan to cap the deductibility of the cost of managing tax affairs, with the measure set to raise $375 million over the forward estimates and $1.6 billion over 10 years.
“This reflects the two-class system we currently have in Australia and the Liberals endorse: first class, where the wealthy can afford lawyers and accountants to use tax deductions to reduce their taxable income right down, and then there’s economy class for PAYG earners who can’t access these deductions,” Mr Bowen said.
Jotham Lian is the news editor of Accountants Daily, the leading source of breaking news, analysis and insight for Australian accounting professionals.
Before joining the team in 2017, Jotham wrote for a range of national mastheads including the Sydney Morning Herald, and Channel NewsAsia.