iscover Treasury consultation paper sheds light on discretionary tax changes
TaxWith Treasury’s consultation paper on discretionary trust tax now out, experts are picking apart its implications for professionals and small businesses.
Tax experts who have reviewed Treasury’s discretionary trust tax consultation paper released on Wednesday (8 July) have weighed in on a few of its proposals, including double taxation and clarification of which trusts are impacted by the tax.
“The minimum tax will only apply to discretionary trusts, which provide greater tax planning opportunities than other types of trusts,” the consultation paper said.
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.
“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.
Also in conversation with Accountants Daily, Grant Thornton national head of technical tax, David Montani, said that there was uncertainty over the many thousands of hybrid trusts that fall between discretionary trusts and fixed trusts, noting that very few trusts meet the very high bar to be a fixed trust.
“Credit to Treasury for recognising in the paper that subjecting all of those hybrid trusts to the new tax would be going too far. The challenge will be to find the appropriate place to draw the line," Montani told the masthead.
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.
Editor's note: This story has been updated since publication.
Want to see more stories from trusted news sources?Make Accountants Daily a preferred news source on Google.
