Accountants slam government’s rationale for trust tax

Hilltop Advisory principal Gavin Quayle said that this reason is not “possessed of enough potency to warrant a shift towards taxing the trust as though it was a separate entity”.

“We reject the suggestion in the Consultation Paper that corporate beneficiaries are set up just to exploit tax planning opportunities,” the submission read.

These entities are set up primarily for non-tax reasons to facilitate cash retention and to serve as a liquid investment vehicle for the family, the firm said.

The firm’s submissions provided recommendations for a parallel Minimum Tax Franking Model, calling the current proposals “punitive” and urging the government to “pick up” where it left off in 2012 and consider a full rewrite of the trust tax rules.

“The minimum tax outcomes are grossly distorted in cases where a corporate beneficiary is interposed between the beneficial owners and the trust.”

The firm recommended deferring the minimum tax and resuming the rewrite of the trust taxation rules, which Treasury commenced in 2011, so that settings could be reformed as a whole through stakeholder consultation.

For its parallel Minimum Tax Franking Model, Hilltop Advisory recommended that it be implemented as a non-refundable franking offset, as it is an existing statutory category.

“What we propose is the extension of the existing statutory framework that should not cause undue complexity in the Tax Law.”

“Doing so would achieve fairness outcomes as it would simulate the tax consequences for members had they received a direct distribution from the trust.”

In addition, it said that the transitional settings do not yet work.

The submission recommended that the “Rollover relief be matched by harmonised State and Territory duty relief, without which it will be of limited practical value.”

“The rollover relief will be defeated by State and Territory duty unless that is addressed, and the collection design has to accommodate the reality that trust and beneficiary returns are commonly prepared together,” it read.

Further, the submission recommended that rollover access “be conditioned on the interest holders in the transferee being within the class of objects of the transferor trust, rather than on continuity of the same family unit or of economic ownership.”

It said that it should accommodate non-standard ownership structures and be made available to more than one replacement entity, provided that substantially all assets are transferred within the rollover window.

“As announced, the measures would tax ordinary family groups at effective rates of 60 per cent to 70 per cent, which is more than double the 30 per cent floor they are meant to impose. That is punitive.”

“If Parliament decides to pursue implementation of the minimum tax based on the announced design, we recommend the term “non-fixed trust” as defined in section 272-70 of Schedule 2F to the ITAA 1936 is adopted as an interim measure pending a wider review of the trust tax rules.”