The Albanese government is facing a fight to pass its new tax on discretionary trusts, with both the Coalition and the Greens saying they want it put before a Senate inquiry.
“Trustees will pay the 30 per cent minimum tax on the taxable income of discretionary trusts,” Treasurer Jim Chalmers told the House as he introduced the legislation on Wednesday.
“Beneficiaries other than corporate beneficiaries will receive non-refundable offsets for the tax payable by the trustee.”
That tax rate would be the same paid by everyday workers earning between $45,000 and $135,000 a year, he said.
Mr Chalmers listed several exemptions, including fixed trusts, charitable trusts and super funds.
He also said there would be carve outs for primary production income, deceased estates and discretionary testamentary trusts set up for “genuine testamentary purposes”.
The reforms are aimed at cracking down on wealthy Australians using trusts to avoid paying taxes.
Under current rules, beneficiaries rather than discretionary trusts themselves are taxed.
That creates a loophole where a high earner can apportion trust profits to relatives with no incomes – such as a stay-at-home spouse – and massively reduce how much overall tax their family pays.
The legislation would change that so a trustee pays a 30 per cent levy on their trust’s net taxable income before distributing it.
Coalition, Greens vow fight
The Coalition and the Greens want the legislation scrutinised further for different reasons.
Echoing peak body concerns, the opposition says it would hurt small businesses by effectively lifting the base tax rate for smaller companies structured as discretionary trusts from 25 per cent to 30 per cent while slapping further pressure on cash flow.
“Let’s be clear … we will go to the election with a policy of axing the tax,” Angus Taylor said, adding that “it would be even better to not let it get into place in the first place”.
On the Greens’ pledge to refer the legislation to an inquiry, the Opposition Leader tentatively agreed to work with them but said he feared “the Greens will just want more tax”.
“They generally do,” he said.
“But if they are prepared to be reasonable in an inquiry to look at how the hell we got to this place, how is it that Labor could have made this decision – of course, we’ll support that.”
The Greens argue the reforms would not go far enough, with Greens economy spokesman Nick McKim saying “there is a real risk that Labor’s political cowardice is transforming them into yet another missed opportunity”.
“Australia’s tax system is riddled with loopholes that overwhelmingly benefit the wealthiest 1 per cent,” he said in a statement on Tuesday.
“Discretionary trusts are one of the ways wealthy people minimise their tax while workers pay more than their share.”
‘Vote down this legislation’
Reacting to the legislation being introduced, the Australian Chamber of Commerce and Industry warned it was another hit that small business cannot bear.
“Today’s legislation confirms the government is proceeding with a big hit on small business through higher taxes,” chief executive Andrew McKellar said.
“Small business is on the brink. One in three have told us they considered closing last year.
“Four interest rate hikes, high inflation, flat growth, and high fuel and electricity prices have hit them hard and now they face higher taxes too.”
Noting the Albanese government “listened to small business on the ATO’s unfair credit card ban”, he said it “must listen again on this unfair trust tax”.
He said it could “cost a small business more than $50,000 in legal, accounting and financial advice, and that’s before state stamp duty”.
“It’s a double hit,” Mr McKellar said.
“The parliament should vote down this legislation.”