BDO submission on Treasury's minimum tax on discretionary trusts proposal
BDO submission on Treasury's minimum tax on discretionary trusts proposal
BDO has made a submission to Treasury in response to the consultation paper Minimum tax on discretionary trusts. While we support the Government's objective of addressing income-splitting opportunities through discretionary trusts, we believe aspects of the proposed regime require refinement to ensure it operates fairly, efficiently and in line with policy intent.
Our submission focuses on several key issues that may create uncertainty, unintended outcomes and practical challenges for taxpayers.
Key themes in BDO's submission
A clearer definition of discretionary trusts
BDO recommends that the proposed minimum tax should apply only to trusts that provide genuine discretionary income-splitting flexibility. We are concerned that relying on the existing tax law concept of a "fixed trust" could unintentionally capture commercial trusts and unit trusts that do not present the policy concerns the measure is designed to address.
We recommend a more targeted definition that focuses on whether a trustee has substantive discretion to determine who receives trust income or capital and in what proportions.
Addressing unintended double taxation
A key concern identified in our submission is the treatment of distributions from discretionary trusts to companies and other trusts. Under the current proposal, the same income may be taxed multiple times as it moves through a structure, potentially resulting in effective tax rates well above the proposed 30 per cent minimum tax.
BDO proposes the introduction of a separate Minimum Trust Credit Account mechanism to allow minimum tax credits to be recognised throughout a chain of entities while remaining non-refundable and preserving Treasury's integrity objectives.
Making transitional relief effective
Treasury has proposed rollover relief for taxpayers who choose to restructure out of discretionary trust arrangements. However, BDO notes that these restructures may still trigger significant State and Territory duty liabilities, particularly where land or business assets are involved.
We recommend that Treasury work with State and Territory governments to ensure complementary duty relief is available. Without this, the proposed rollover relief may have limited practical value for many taxpayers.
Preserving tax attributes on restructure
Where taxpayers undertake eligible restructures, BDO believes important tax attributes should be preserved. These include cost bases, acquisition dates, capital losses and eligibility for small business CGT concessions.
Providing continuity of these attributes would help ensure the rollover functions as genuine transitional relief rather than creating new tax costs or disadvantages for affected taxpayers.
Additional recommendations
Our submission also addresses:
Exclusions for certain trust arrangements and income tax-exempt entities
- The treatment of excess franking credits
- Collection mechanisms for trust-level tax liabilities
- Potential interaction with Division 7A and existing trust taxation rules.
- Supporting better tax policy outcomes
BDO encourages Treasury to continue consulting with industry and professional stakeholders as the proposals are developed. Careful design of the regime will be critical to ensuring it achieves its intended policy objectives without creating unintended consequences for businesses, investors and family groups.
Download the submission
A full copy of BDO's submission on Treasury's proposed minimum tax on discretionary trusts is available for download below.
How BDO can help
BDO's tax specialists work with privately owned businesses, family groups, trustees and investors on complex tax and structuring matters. To discuss the potential implications of the proposed changes, speak with your local adviser or learn more about our tax services.