Family trusts: Shorten ignites class warfare with tax crackdown

THE explosive political issue of family trusts is about to boil over again, with Labor leader Bill Shorten igniting a new “class war” over taxation.

Federal Opposition leader Bill Shorten said the policy was about ending the practice of ordinary workers subsidising tax breaks for the rich.

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LABOR has declared war on higher-income earners by stopping the use of trusts to minimise tax in a bid to get billions more for the budget.

Leader Bill Shorten will today unveil his plan to end Australia’s “two-class tax system” with the introduction of a 30 per cent tax rate for discretionary trust distributions to adult beneficiaries.

To be announced before the party faithful gathered at the NSW Labor State Conference in Sydney Town Hall, Mr Shorten’s policy is founded on a belief reforming family trusts will not only create a fairer tax system by stopping the practice of “income splitting”, but also add billions to the budget bottom line.

Trusts were used for a range of legitimate reasons but were also used solely for tax minimisation, Mr Shorten said.

Mr Shorten said the policy was about ending the practice of ordinary workers subsidising tax breaks for the rich.

“Australia currently has a two-class tax system,” he said.

“Wealthy individuals are much more likely to benefit from a trust than low and middle income earners. Labor wants to change the system so that PAYG taxpayers aren’t subsidising the tax breaks of much wealthier Australians.”

While trusts were used for a range of legitimate reasons such as asset protection and business succession, there were cases where trusts were being used solely for tax minimisation, Mr Shorten said.

Under existing laws, funds in family trusts can be distributed on an entirely discretionary basis, meaning they can be split between different people in lower tax brackets who pay less tax.

This means the tax paid on the overall amount is much less than it would otherwise be.

In contrast, ordinary PAYG workers do not have the option of artificially splitting their income among different family members to lower their tax bill.

Individuals and businesses will still be able to use discretionary trusts, but will be subject to the new tax rate.

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Mr Shorten will argue the policy builds on the reforms of John Howard in the early 1980s when, as treasurer, he declared a crackdown on artificial income splitting to ­minors by taxing distributions at the top marginal tax rate.

The announcement follows Labor’s pledge to reform ­negative gearing and capital gains tax.

The party claims the policy will not affect 98 per cent of taxpayers in Australia, with ­exemptions also given to non-discretionary trusts such as ­deceased estates and fixed and disability trusts.

Farm and charitable trusts will also be excluded.

The policy allows for the ATO Commissioner to be given discretionary powers to manage exemptions, with the Australian Taxation Office also being handed an extra $55 million to boost existing trust anti-avoidance activities.

Mr Shorten said the policy had been costed by the independent Parliamentary Budget Office to raise an estimated $4.1 billion over 2021-22, with another $17.2 billion reaped over 10 years.