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 leads Velocity Legal’s Sydney practice.

If you are in a fight with the ATO or looking to restructure your business, you should have Andrew in your corner. Andrew is passionate about getting wins for his clients, solving difficult legal issues, and giving his clients clear and confident guidance. Andrew is a Chartered Tax Advisor, holds a Masters of Law from the University of Melbourne and is the author of ‘Life, Death and Taxes’. Andrew is also a passionate snowboarder and is always up for the next adventure in life.

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Level 49, 360 Elizabeth Street,
Melbourne VIC 3000

Level 10, 580 George Street,
Sydney NSW 2000

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