30% minimum tax rate on discretionary trust distributions
The Labor Party proposes to introduce a standard minimum 30% tax rate for discretionary trust distributions to adult beneficiaries (people over the age of 18). There are already very high tax rates on distributions to under-18s. Currently, effective income distributions from trusts are subject to tax in the hands of beneficiaries at their respective normal marginal income tax rates. The policy is designed to target distributions to low income taxpayers within family groups such as university students, non-working spouses, or low-income seniors who would otherwise be taxed at low or zero rates.
According to the Labor Party this measure aims to address tax minimisation and artificial income splitting and will not affect 98% of taxpayers in Australia. It will, however, affect 318,000 discretionary trusts. Non-discretionary trusts such as special disability trusts, deceased estates and fixed trusts will not be affected by this change. Farm trusts and charitable trusts will also not be impacted.
The changes proposed have been justified on equity grounds as addressing income splitting opportunities not available to PAYG income earners, despite the fact that income splitting can be achieved by other means such as gifting assets or owning assets in other structures – albeit with disadvantages. There are also other questions remaining including the incidence of tax (whether the trustee or the beneficiary will be taxed), the interaction of the measure with franking, foreign income, the CGT discount, carried forward losses and gift deductions, and why primary producers are to be treated differently from other active small businesses.
Beneficial ownership tracing central registry
Labor proposes to establish a publicly accessible central registry of beneficial ownership of companies and trusts.
If fully implemented, this measure will mean that ownership of all entities in Australia will be able to be traced to the ultimate individuals who control them. How privacy concerns will be addressed (or whether they will be addressed at all) remains to be seen.