SEVEN REASONS WHY LABOR’S DISCRETIONARY TRUST PROPOSAL IS FUNDAMENTALLY FLAWED

By Andrew Henshaw, Director, Velocity Legal

On 30 July 2017, the Labor party announced that, if elected, a Labor Government would introduce a standard minimum 30 per cent tax rate for discretionary trust distributions to mature beneficiaries (people over the age of 18).

Trusts are generally taxed as ‘transparent entities’. This means that usually, a discretionary trust doesn’t pay tax on its income, and instead the beneficiaries pay tax on that trust income, at their own tax rate. Under Labor’s proposed measure, any income that a discretionary trust distributes will be subject to a minimum tax rate of 30% (irrespective of the actual tax rate of the beneficiary) (the Proposed Measure).

The Commissioner of Taxation was recently quoted as saying that Labor’s plan to tax discretionary trusts at a minimum 30 per cent rate is “a real difficult nut”. I agree. Here are some of the reasons why I think the proposal is fundamentally flawed.

Insight Authors…

ANDREW HENSHAW

Director

Andrew specialises in difficult tax disputes and complex tax advice. He is passionate about getting wins for his clients, solving difficult legal issues and giving clear practical advice.

Andrew acts for a diverse range of private businesses, high net-wealth individuals and family groups. Andrew has been a Director of Velocity Legal since the firm was founded in 2016, and established Velocity Legal’s Sydney practice in 2019.

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