BDO responds to Labor’s proposed Tax on Trusts

31 July 2017

In response to the announcement by Opposition Leader Bill Shorten to impose a 30 per cent tax rate on distributions from family trusts to make the tax system fairer, BDO Tax Partner Mark Molesworth commented:

“This proposal appears to be that all distributions from discretionary trusts (other than primary production trusts) will be taxed at 30% as a minimum.

“Presumably, if a beneficiary’s marginal rate is higher than this, the higher rates will still apply.

“My concern with the implementation of this policy is for small business people who are ‘successful’ by Bill Shorten’s standards. He says that a nurse who earns $70,000 is successful. We agree. Everyone who is earning at their potential is successful.

“But compare the pairs:

  • A husband and wife, each of whom is a nurse earning $70,000 per year, will pay, in aggregate, $31,400 in tax on total family income of $140,000.
  • A husband and wife, each of whom is a plumber, carry on business through a discretionary trust and earn a net profit of $140,000 (ie each is just as ‘successful’ as the nurse). They will pay, in aggregate, $42,000 under Labor’s plan.
  • That is, the plumbers will pay $10,000 more in tax than the nurses on the same family income. Is this really what is intended?

“Disadvantaging small business people in the pursuit of high income earners does not seem like a smart move. It should be a case of targeting the behaviour, not the entity.”