Slap for farmer exemption in Labor ‘tax grab’ on discretionary trusts

Labor has been urged to “go back to the drawing board” over its proposed crackdown on discretionary trusts.

Opposition Leader Bill Shorten wants to exempt farmers from his trust crackdown. Picture: Gary Ramage

Labor has been urged to “go back to the drawing board” over its decision to exempt farmers but not small-business owners from its planned $17 billion crackdown on the tax treatment of discretionary trusts.

Writing in The Australian today, Small Business Minister Michael McCormack slams the policy for treating farmers differently from the thousands of regional firms that supply them under its plan to stop income splitting in discretionary trusts.

“Farmers and small businesses have more in common than a postcode,” Mr McCormack said.

“The Liberals and Nationals know when farms do well, so do stock and station agents. So do machinery dealers. So does every single small business in that community.

“Labor’s tax grab forgets that just like those over the farm gate, small businesses often use a trust to manage in times which aren’t as good.”

Labor’s policy would impose a 30 per cent minimum tax rate on distributions from discretionar­y trusts — a plan the opposition says will affect just 2 per cent of taxpayers.

The move is aimed at reducing the attraction of income splitting, a practice where higher-income earners spread their income across family members through the trust structure to reduce their overall tax burden.

Farmers and charitable trusts would be exempt under the Labor crackdown, which is estimated to raise $4.1bn over the forward estimates and $17bn over the decade.

The move was slammed by Malcolm Turnbull as a “kick in the guts” to small business, along with Labor plans to overturn ­penalty-rate cuts and increase the top marginal tax rate to 49.5 per cent.

Opposition treasury spokesman Chris Bowen defended the exemption by arguing farmers had “lumpy income” and because it was “the right thing to do”.

But Mr McCormack attacks the logic, arguing small-business owners experience seasonal “ups and downs” and are not millionaires, despite Labor claiming its crackdown would address economic inequality.

“Instead of calling those who dare have a go and create jobs ‘millionaires’, Labor should go back to the drawing board and join the Liberals and Nationals’ support for small business,” he says.

Speaking in parliament, Revenue and Financial Services Minister Kelly O’Dwyer said the Labor move was a “tax grab” on 270,000 small businesses. “The Leader of the Opposition, who once supported trusts, ... needs to explain why it is he will provide an exemption to farm trusts but not to the small businesses who provide farmers with farm supply, such as fertilisers for crops and stock feed for livestock” she said.