The Tax Institute has recently finalised our submission to the initial round of consultation by Treasury with regard to trust tax law reform.
We congratulate the Government on the release of the consultation paper and their ongoing commitment to the reform of the taxation of trusts. We have long called for reform in this area that you, our members, have repeatedly nominated as creating the greatest compliance difficulties and most in need of legislative clarification. The paper represents a significant first step to streamlining and simplifying the taxation of trusts.
Our submission addresses the issues raised in the paper by setting out:
- the problems with the current system;
- the high level principles which should guide the design and function of any system for the taxation of trusts;
- our observations on the various models set out in the consultation paper; and
- our recommended model for the taxation of trusts.
The guiding principle in relation to the taxation of trusts should be that all trust net income is taxed in the hands of either the trustee or a beneficiary. As such, the conceptual plan we have recommended to Treasury involves either an express or implied agreement between trustee and beneficiary for the beneficiary to include an amount (and/or type) of trust income in his/her assessable income, with all income not so included in the assessable income of a beneficiary by the following 30 June to be taxed in the hands of the trustee. Any amounts taxed in the hands of the trustee should be taxed at a rate that approximates the effective tax rate applied to UPEs in favour of a company, and an anti-avoidance rule (akin to the current section 100AA) should be retained to ensure that amounts are not inappropriately “taxed” in the hands of tax exempt entities.
You can access our Treasury submission here.
We will keep members informed as the consultation progresses.
Please see below for details of other activities this week.
Robert Jeremenko FTIA