“There is very little if anything to commend the institution that is the discretionary trust,” says Associate Professor Dale Boccabella from the UNSW Business School.
“As we head to the federal budget 2017, the Treasurer should be looking at the benefits they bring to society. It is hard to see many, and they appear to be dwarfed by their destructive and damaging features, like tax minimisation and their use to defeat creditors and divorcing spouses.” he says.
Associate Professor Boccabella argues there is something ‘not right’ with the tax treatment of family trusts – also known as discretionary trusts -while accountants and tax lawyers working with discretionary trusts know first-hand that the current income tax treatment easily fails the ‘smell test’.
However, he says the inequitable and unfair tax treatment of discretionary trusts has had virtually zero attention in government tax reviews, such as the Henry Review. Conservatively, on current settings, the cost to public revenue is easily above $2bn and growing as the number of these trusts continues to grow.
Perhaps equally important, the damage to the integrity of the tax law is significant. “Maybe it is time the Federal Budget 2017 had a look.”
At the heart of the problem, he says, is the tailoring of trust income allocations to beneficiaries within the ‘family’ who have the lowest other taxable income so as to access as many tax-free thresholds and low rate bands as possible. Allocations are also made to so-called “bucket companies” where the tax rate is capped at 30%.
Allocations can change the following year if another low rate family member ‘comes along’.
He argues that income tax law concerning discretionary trusts can be reformed to instil some fairness into the system while leaving other areas of law concerning these trusts unchanged.
See Dale Boccabella’s further comments in the SMH.
For further comment call Dale Boccabella on 02 9385 3365, 0427 591208 or Email email@example.com
Media contact: Julian Lorkin: 02 9385 9887