Government introduces 30% trust tax

The Albanese government introduced legislation on Wednesday placing a minimum 30% tax on income received from discretionary trusts, part of what Treasurer Jim Chalmers calls the most ambitious tax reform in a generation.

What is a discretionary trust?

Discretionary trusts allow income from assets like businesses, property or shares to be split between beneficiaries, usually family members. The trustee can choose who receives what and change it at any time.

Tax advantage for the wealthy

More than ninety five percent of taxpayers do not get any income from trusts.Those that do tend to be among the wealthiest.

Steven and Angela example

Treasury's budget documents show Steven earning two hundred thousand dollars from a discretionary trust pays twenty four thousand eight dollars in tax at an average rate of twelve percent.

Inequality in the tax system

According to Treasury analysis, the tax rate for families with discretionary trusts in twenty twenty two twenty three was on average four percentage points lower than families with similar incomes who did not use trusts.

Benefits go to the wealthy

Most of the benefits provided by discretionary trusts go to the top ten percent of families by income, according to Treasury analysis of twenty twenty two twenty three tax data.

New rules from mid-2028

Under the proposed legislation, a minimum thirty percent tax will apply to income derived from discretionary trusts from mid twenty twenty eight.

Revenue and fairness claim

The minimum thirty percent tax on discretionary trust income will raise an estimated four point five billion dollars in twenty twenty nine thirty, its first year of operation.

“the arrangements that we start legislating today will mean a fairer tax system, and will also fund tax cuts for workers”

Small business restructuring costs

People and businesses with discretionary trusts may need to restructure to avoid the minimum thirty percent tax.

Treasury's lower estimate

Treasury reckons the number of affected small firms is more like two hundred ten thousand. Even so, the opposition has highlighted that total restructuring costs and compliance bills could run into the billions of dollars.

Government amendments to ease burden

Wednesday's bill expands options to limit or eliminate restructuring costs.Trustees can now make fixed distributions to pre nominated beneficiaries, avoiding the thirty percent minimum tax without costly restructure.

Donations and stamp duty exemptions

After consultations, the government agreed to exempt donations from discretionary trusts to sporting and community groups. Chalmers said Treasury officials are talking to the states about waiving stamp duty when restructuring out of a trust.

Legislation likely to pass

The Coalition opposes the changes, with shadow treasurer Tim Wilson criticising the impact on small businesses.

“We already have near-record small business insolvencies, collapsing consumer confidence and real profits lower than at the change of government, and the answer from the Albanese government is to add new taxes and costs”