UNSW expert available to comment on discretionary trust tax changes
UNSW Sydney
UNSW has an expert available for comment on the changes to the discretionary trust tax.
Dale Boccabella, Associate Professor of Tax at the School of Accounting, Auditing & Taxation, UNSW Business, is available for comment. He can be reached at [email protected] or 0427 591 208.
A/Prof. Boccabella says:
Some objectivity re taxation of discretionary trusts would be welcome in debate
Both major sides of politics have tried and failed to reform the taxation of discretionary trusts over the last 30 years. The tax unfairness of them has been known for at least 50 years. The reality is that discretionary trusts are deployed by many to significantly reduce income tax thereby leaving other taxpayers to make up the shortfall.
The current tax rules around discretionary trusts are incredibly deficient, partly because it is hard to even know whether the general law transaction involved (exercise of income allocation discretion by trustee) is valid. Even accepting the validity of allocations at general law, the tax rules are deficient and unsuited to ensuring even a reasonable amount of tax is obtained where a discretionary trust is involved.
Discretionary trusts are also deployed for other reasons, “asset protection” being one that is often used and deployed. This claim seems to be made as a counter to the tax minimisation claim and/or to give legitimacy for using the discretionary trust vehicle. Asset protection though is code (euphemism) for avoiding economic responsibilities and potentially giving rise to unjust and inequitable economic outcomes. Just ask spouses in a relationship breakdown where “joint property” is held in a discretionary trust and the legal maneuvering of one party that occurs to keep that property out of the divisible property pool to allow for a just and equitable division.
Creditors (suppliers of good or services on credit) of a small business operated through a discretionary trust may also have trouble getting paid where the business is in financial difficulty. The company vehicle was designed to operate businesses; the trust vehicle was not designed for this.
Given the above, the Government’s reform to the taxation of discretionary trusts is long overdue and it is a reasonable response to this highly problematic area of Australia’s income tax system.
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