The Australian, July 25, 2017
Bill Shorten is facing a war with small business over an imminent Labor policy to increase taxes and generate billions of dollars in government revenue, fuelling fears of a hit to more than 700,000 employers using trusts to run their operations.
The Opposition Leader has sparked a backlash against his tough new talk on tax reform as business groups warn that jobs could be lost from new laws that overhaul family trusts and other tax arrangements.
More than a dozen federal Labor MPs use family trusts or have them as part of their extended family arrangements, lending weight to industry arguments that trusts should not be demonised in pursuit of tax revenue.
Parliamentary records show Labor MPs including Amanda Rishworth and Stephen Jones disclosed family trusts on their register of interests, often because of their use by other members of their families.
Labor deputy leader Tanya Plibersek has also disclosed a family trust linked to her partner, Michael Coutts-Trotter, but she is not a beneficiary.
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Scott Morrison revealed yesterday he had used a family trust in the past although it “didn’t get much of a workout” and was now dormant. “So it’s not something I’ve really particularly used, but I do know it’s used widely by small businesses, by rural small family businesses, by farmers,” the Treasurer said.
While Mr Shorten said there were “sound” reasons for using trusts, he is also making a wider claim that the tax system needs an overhaul to remove unfairness and make sure Australians should have “one tax system” for all.
Mr Shorten declared the new policy would follow “exactly the formula” used for Labor’s crackdown on negative gearing and increase in capital gains tax, a package that promised to raise more than $30 billion over a decade but triggered a ferocious attack from industry.
In the same way the negative gearing policy raised questions about MPs who held investment properties, the Labor tax reform could put politicians in the spotlight over their use of trusts.
The reforms are being seen as a threat to small employers using family trusts to manage their incomes, a group that represents 85 per cent of the nation’s 823,000 trusts, according to estimates the Tax Institute provided to The Australian yesterday. The institute warned that any change had to be “properly thought through” to prevent damage to employers from an overhaul to the rules. It said a sole trader with a taxable income of $180,000 a year could suffer a 60 per cent increase in his or her tax burden if the reforms made it impossible to use a family trust.
Mr Shorten vowed to outline more reforms to improve the fairness of the tax system as he refused to rule out higher taxes on trusts or more controversial changes such as an inheritance tax, an idea backed by left faction leaders. “I think we’re actually the only party that’s doing tax reform and we’ll outline it soon, and we’ll make sure that we deal with people’s concerns when we outline it,” Mr Shorten said yesterday.
Asked if the tax policy on trusts would be changed, Labor refused to rule out the option or other potential reforms.
The bold policy move reflects Labor’s confidence that its message on fair taxation and income inequality is resonating with voters, leading it to retain its negative gearing policy after the election despite strong criticism.
Labor suffered embarrassment during the election campaign when frontbencher David Feeney was forced to admit he had not disclosed an investment property in his own electorate that was worth $2.3 million.
Ms Rishworth said yesterday the trust noted in her pecuniary interests was her parents’ and she had included it only in the “completeness of full disclosure”.
“I have no idea why they have it,” she said. “I have no involvement in it or control. It is my understanding that at this time I would only be a beneficiary if they die. I am hoping it does not happen for a while.”
Labor MP Stephen Jones said family trusts provided a “means of tax minimisation that isn’t available to most Australians”. His register of members’ interests lists the Quilter Family Trust, owned by his spouse’s father, which makes monthly payments to his children’s savings account.
It is understood that his wife has not been a beneficiary of a family trust for some years.
The new plan, expected to be unveiled this weekend when Mr Shorten speaks to state Labor conferences in Queensland and NSW, is being described as a single policy initiative rather than a collection of tax reforms.
Mr Shorten said yesterday: “We’ve got a plan to take to the next election and the principle which we adopt is that working-class and middle-class families shouldn’t be asked to pay more income tax when millionaires and large corporations are being told by this government that they’ll have to pay less tax. We don’t think that’s fair. We want one tax system for all Australians — we think that’s fair.”
Mr Shorten has not criticised the use of trusts and his advisers noted yesterday that he had argued in recent days that it was legitimate to use them.
Asked about family trusts on ABC TV on Sunday, Mr Shorten said “trusts as a legal protection I think (are) sound” but that his principle was that Australia should have “one tax system for all”.
Mr Morrison attacked Mr Shorten’s policy direction as a “dark economic vision” that meant personal income taxes should go up, company tax rates should be higher and negative gearing should be changed in a way that hurt people on middle incomes. “He’s interested in the politics of envy; I’m interested in the economics of opportunity,” the Treasurer said. “That’s the real difference between what Labor is offering, and what the government is doing.”
The Tax Institute estimates the number of trusts has grown from about 500,000 early last decade to about 823,000 today, with small-business owners making up the vast majority of them. The institute’s senior tax counsel Robert Deutsch said the trusts were not widely used by large taxpayers — making up about 220 trusts in 2015 — but were commonly used by small businesses with less than $10 million in turnover, making up about 700,000 trusts.
“Even higher marginal tax rates proposed by the federal Opposition will only serve to enhance the attractiveness of such arrangements,” Professor Deutsch said.
Council of Small Business Australia chief Peter Strong said he could not estimate how many of its members used family trusts but warned against changing rules that would require complicated changes and hurt their ability to hire staff. “Those members are employers, so if you make it more complicated you’re just holding back employment,” he said. “Why fiddle around with a system that’s working? Let’s not muck around with something that’s been in place for quite a while.”
Institute of Public Accountants senior tax adviser Tony Greco said trusts were always part of the “landscape” for asset protection and succession planning, while businesses also used them to distribute income. “The fact is that we’ve got higher rates of taxes in this country,” Mr Greco said.
“You only have to earn more than $180,000 and you’ve got a very high tax rate compared to other countries. People who earn high incomes look for ways to minimise that impost. If you reduced personal tax rates, then all the incentive for doing these weird and wonderful things would mean people wouldn’t be jumping through all these hoops to get to an end result.”
He noted New Zealand’s top marginal tax rate was 33 cents in the dollar. Australia’s top rate is 47 cents in the dollar when the Medicare levy is added to the 45 per cent tax rate.
Labor Left faction leader Doug Cameron said he had argued in the past that trusts could be used to minimise tax although there was a “genuine need” for them in areas like small business and farming.