Opposition leader Bill Shorten says a future Labor government will impose a 30 per cent tax rate on distributions from family trusts to crack down on wealthy Australians using trusts to avoid paying income tax.
Targeting trusts is part of Mr Shorten’s strategy to turn inequality into the defining mission of a future Labor administration.
It is estimated the crackdown on income splitting will raise $17.2 billion over a decade.
It will target high-income earners who cut their tax bill by using trusts to split money to other family members in lower tax brackets.
“Every year in Australia, there are high-income earners who use discretionary trusts to park their money in a lower tax bracket,” Labor leader Bill Shorten told the NSW Labor conference on Sunday.
“And the rest of the community are left to subsidise this. That’s not fair on Australians who’ll never be able to afford this option.”
“Our system should not be subsidising those who are already wealthy – and our budget cannot afford to.”
Trust arrangements used by farms, charities and deceased estates would be exempted from the changes.
“We’re not abolishing trusts. This is about trusts serving their true purpose, so that distributions are taxed fairly,” Mr Shorten said.
“It makes our tax system fairer, it makes our budget stronger, and it’s the right thing to do.”
Finance Minister Mathias Cormann said the proposed change would affect small business and described it as the “politics of envy and class war”.
“That will hurt investment, it will hurt growth, it will cost jobs, it’s precisely the wrong way for Australia to go at this point in time,” Senator Cormann told Sky News’ Australian Agenda program.
“This is ultimately going to be a tax hike, in particular on the many small business operators across Australia who use trust structures as a legitimate way of managing their financial affairs.”
Chartered Accountants Australia and New Zealand head of tax Michael Croker said Mr Shorten’s speech was “light on specifics for a legitimate structure used widely for business, personal investment and family purposes”.
He said it raised a number of issues such as equity of treating active small businesses differently from farmers, the potential for over-taxation, particularly for business trusts, restructuring relief for those who may wish to exit discretionary trust structures and the scope of carve-outs for farm trusts, testamentary, disability and charitable trusts.