Treasury consultation paper sheds light on discretionary tax changes

In conversation with Accountants Daily, National Tax & Accountants' Association senior advocate Robyn Jacobson noted that the consultation disincentivises the use of a chain of discretionary trusts. 

“The minimum tax offset is non-refundable, and any excess is not refunded, not carried forward nor passed onto further beneficiaries,” the paper said.

“This maintains a floor on the tax paid on income of discretionary trusts, and discourages complex tax planning arrangements involving chains of discretionary trusts,” it added.

“There may not be an appreciation that a third trust onwards in a chain of trusts would not be entitled to the minimum tax offset based on tax paid by trustees further up the chain," Jacobson noted.

“So once again, this is going to produce double taxation,” she said.

Grant Thornton's national head of tax, David Montani, told Accountants Daily that the discretionary trust tax paper does a good job in clarifying the exclusions in its application of the tax.

“The minimum tax will not apply to other types of trusts, such as fixed trusts, widely held trusts, complying superannuation funds, special disability trusts, deceased estates and charitable trusts,” the paper said.

For Montani, the clarification that the tax will not apply to fixed trusts was welcomed.

“I'll give [Treasury] credit where they have recognised that [the discretionary trust tax] won't apply to fixed trusts.”

In a statement, Treasury said these proposals aim to allow several taxpayers to plan their tax affairs in ways not available to most Australians.

“These reforms are all about making the tax system fairer by better aligning the tax rate on trust income with tax rates paid by workers, and will help fund income tax cuts for workers,” Treasury said in its statement.

“Creating a fairer tax system is a key aim of our ambitious tax reform package, along with making it easier to buy a first home and cutting income taxes for workers again and again,” Treasury added.