Tax partner Jonathan Ortner was quoted at length in the business pages of The Weekend Australian warning that proposed tax changes could “destroy discretionary trusts overnight”.
Describing Arnold Bloch Leibler as “one of Australia’s most influential law firms”, senior journalist Matthew Cranston draws on the firm’s submission to Treasury, which urges the government to reconsider a design that could tax the same income twice.
“The government’s statement that more than 90 per cent of active small businesses will not be affected understates the measure’s reach,” the submission argues. “With more than 840,000 discretionary trusts in existence, the affected population extends will beyond the subset of entities Treasury has chosen to describe as ‘active small businesses’”.
At the heart of ABL’s concern is the proposed denial of a tax offset to corporate beneficiaries for income already subject to the new minimum 30 per cent tax. This could expose business and investment income to a second layer of tax simply because it is distributed to a company.
Although the government has proposed an alternative regime involving fixed entitlements for nominated beneficiaries, that approach would require families to give up the flexibility that often underpins their decision to use a discretionary trust.
As Jonathan explains:
“These trusts are not tax dodges. Families use them to protect business assets, plan for succession and reinvest profits in the business. But under the government’s proposal, tax already paid by the trust could be ignored when the income is later paid to a company.”
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