Charity Trusts Protected in Labor’s Tax Reform Plan

The community sector has welcomed a move by the Labor party to safeguard charitable trusts in its tax reform policy released on Sunday.

The federal opposition announced that a Labor government would introduce a standard minimum 30 per cent tax rate for discretionary trust distributions to adult beneficiaries. Labor’s policy would also tackle the use of income splitting to minimise tax.

However, Labor’s policy would only apply to discretionary trusts. Non-discretionary trusts such as special disability trusts, deceased states and fixed trusts would not be affected by the change, along with farm trusts and charitable trusts.

Opposition leader Bill Shorten said: “Australia currently has a two-class tax system. While most people pay the tax that they owe through normal PAYG arrangements, the system includes generous subsidies and loopholes which allow some wealthier people to minimise their tax.

“Wealthy individuals are much more likely to benefit from a trust than low and middle-income earners. The average amount of money held in private trusts by the wealthiest 20 per cent of households is $123,000, while for the next wealthiest quintile it is just $4,000,” Shorten said.

“Individuals and businesses use trusts for a range of legitimate reasons, such as asset protection and business succession. But in some cases, trusts are used solely for tax minimisation.

“Exemptions will apply under the new arrangements, such as for people with disability, to ensure people suffering genuine hardship are not affected. The ATO Commissioner will be given discretionary powers to manage this.”

The Community Council for Australia (CCA) said carving out charities and some other special cases from the tax plan was “a good first step”.

CCA CEO David Crosbie said the sector had been in discussions about the issue with various shadow ministries and particularly the Shadow Minister for Charities Andrew Leigh.

“CCA has long argued we need to introduce a form of death duties – partly to promote giving to charities – partly to address growing inequality,” Crosbie said.

“The Australia we want to live in does not support growing inequality and therefore supports the principle of closing tax loopholes that are only available to the richest in Australia.

“The challenge for the ALP is to ensure closing these loopholes has no detrimental impact on charities or the communities they serve.”

Advocacy not-for-profit organisation ActionAid Australia said it welcomed Labor’s announcement that the party would take action to end tax-dodging through the use of family trusts.

“Tax-dodging is not a victimless pursuit; it leaves billions of people without access to basic services that should be paid for by stolen tax dollars. Action by our leaders on this issue is long overdue,” executive director of ActionAid Australia Michelle Higelin said.

ActionAid Australia has been campaigning for an Australian register of beneficial ownership that would require rich individuals and multinational corporations to declare their shell companies, trusts and foundations. The organisation has called for a register that is publicly accessible.

“While Labor and the Greens are both developing a suite of strong public policies to shut down tax evasion and end an unfair tax system, we are yet to see the Coalition step up and legislate the introduction of a publicly accessible beneficial ownership register for corporations and trusts,” Higelin said.

Higelin said that the Australian government was lagging behind other countries, with the federal government only recently releasing a discussion paper, ‘Increasing Transparency of the Beneficial Ownership of Companies’, for public consultation.

“At least 45 countries around the world are moving to introduce a publicly accessible register of beneficial ownership of companies and trusts to protect billions in public revenue from being robbed by greedy tax-dodgers,” Higelin said.

Welfare peak body ACOSS said: “Tightening the tax treatment of private trusts is seriously overdue.

“The public must be confident we are all contributing our fair share to the budget to meet community needs,” ACOSS CEO Dr Cassandra Goldie said.

“If implemented, the opposition’s proposal would be a big step towards improving the equity and transparency of our tax system.

“We urge the Federal Government to also take the need for reform in this area into serious consideration.”

The federal treasurer, Scott Morrison has slammed Labor’s tax plan describing it as an attack on small business as well as being light on detail.