The Australian, July 30, 2017
The government is warning small and medium-sized businesses will be hit by a double tax hike under a future Bill Shorten government as Labor announces it will impose a minimum tax rate of 30 per cent on discretionary trust distributions.
Opposition treasury spokesman Chris Bowen said Labor was preparing itself for a government scare campaign but declared “we’re ready for it”, revealing plans to target income splitting and high-income tax minimisation through family trusts.
About half of all discretionary trusts in Australia – 315,000 out of 642,000 – will be affected.
“Most of those will be people on very high incomes. Most small businesses are doing it tough, they’re not earning huge money that enables income splitting,” Mr Bowen said.
“If they’re (small businesses) providing distributions to somebody who’s not working for their business, then a minimum rate of tax would apply.”
The Opposition Leader unveiled the policy in a speech to the NSW Labor conference today and said the tax on distributions to trust beneficiaries over 18 years of age would make the tax system “fairer” and the budget “stronger”, raising $4.1 billion over the forward estimates and $17.2bn over ten years.
“It’s the right thing to do. I want to be very clear on some important points: We are not abolishing trusts; our policy does not affect deceased estates or disability trusts; it doesn’t apply to farms or charitable trusts; small businesses will continue to enjoy asset protections,” Mr Shorten said.
“Every year in Australia, there are high-income earners who use discretionary trusts to park their money in a lower tax bracket. 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.”
While Labor concedes trusts are used for a range of “legitimate reasons” like asset protection and business succession, it is going after trusts used “solely for tax minimisation”.
Defending the changes, the party estimates 98 per cent of taxpayers will not be affected and says it is extending John Howard’s application of the top marginal tax rate on trust distributions to minors in the 1980s, but at a less punitive rate.
“Remembering trusts aren’t available to your average pay-as-you-go taxpayer … you can have a high-income earner who distributes their income around to maybe their spouse, who is below the tax-free threshold, maybe their university-aged children who are below the tax-free threshold, and maybe their parents who don’t pay income tax and can get the tax bill right down,” Mr Bowen told the ABC’s Insiders program.
“In this environment, when we’re looking for budget repair, this can’t be allowed to continue and we will stop it.”
Finance Minister Mathias Cormann attacked Labor’s policy, labelling it “another tax grab” that would “increase the overall tax burden” in the economy.
Adamant the Coalition had no plans to change family trust arrangements, Senator Cormann claimed small businesses in particular would be targeted under Labor and said they deserved to see out of which pockets the $17bn in revenue would come from.
“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.”
Senator Cormann said because Labor had not ruled out reversing the company tax cuts for businesses with an annual turnover of up to $50 million, they should expect a double whammy.
“Labor keeps asserting the full amount from the corporate tax cuts is something they would allocate to higher spending . SO you’ve got to assume Labor would in government reverse the full company tax cuts Turnbull government has put forward,” he said.
“Bill Shorten has already spent all of the money he says would be able to be raised by higher company taxes … so at this stage small and medium-sized businesses across Australia are looking at both a higher business tax rate plus this attack that Bill Shorten has flagged in relation to trusts.”
Labor challenged the government to either defend the status quo or “admit there’s a problem” and consider adopting its proposal.