Trusts: Next political frontier for inequality after NG and CGT

Paper from Australia Institute: http://www.tai.org.au/sites/defualt/files/P428 Trusts and Tax Avoidance - Richardson - FINAL.pdf

Summary from the paper:

• No of Trusts (14-15): 823,44 (of which 78% were discretionary)
  
• Assets value (14-15): $3.1 trillion
• Revenue (total business income): $349.2 billion.
• Trusts as a % of GDP: 22 %
  
• Industry having maximum trusts: Construction
• Revenue foregone: 3.5 billion per annum (conservative estimate based on 1% of income received by trusts)
• Beneficiaries of trusts:Virtually top 20% of wealthiest households
• Income distribution: People with taxable incomes >= 500K (.43% of population) account for 51% of all trust distributions

ABC's report: Trust funds are costing the taxman a 'staggering' $3.5 billion every year

Appears that Henry Review also recommended changes to rules for trusts.

Labor political strategy (sketchy at the moment) appears to be targeting trusts (Bill Shorten "two-class tax system"): Trusts in Labor's sights as it targets 'two-class' tax system

Anthony Albanese has confirmed that labor is going after the trusts as a measure to address inequality Lateline - 22/07/2017: Late Debate: Arthur Sinodinos and Anthony Albanese

Look forward to others views.

 

Sounds a bit misguided but the rich are certainly benefitting at the expense of the poor.

 

Cgt and Ng are definitely worthy of discussion and even those against changes would acknowledge that, if they were being reasonable.

Blanket anti trust sentiment is silly though IMO, bunch of @rseclowns who are parroting this IMO.

Btw, I know many like to bash the ABC but it wasn't ABC making the claims, they were reporting on what the Australia insitute released on the subject, as the ABC or any other media outlet should, it's not an opinion piece it's reporting so there isn't any room for the journo to agree or disagree etc and certainly not in the detail a topic like this would require

 

I do think a top tax rate over 50% once u consider Medicare levy and now this 2% is misguided and not really in line with what they claim to be targeting


Ultimately you can't talk about targeting these "dodgy" tax avoidance schemes exclusively used by the ultra wealthy to avoid paying tax and then follow it up with increasing the top tax bracket because if thye want to target (reasonably IMO) some of the ultra wealthy doing the dodge they will not achieve here as those folks wouldn't be paying 49 or whatever %. IMO it will be a bit of a mental barrier for many, in this day and age of increasingly mobile workforce and capital I just am nervous about the intagible effect of our country telling the high earning professional workforce that they will be paying over half their income (yes it isn't really but that headline figure is what everyoneoverseqs focused on) when just 4 hours away in say Singapore they could be paying 17%, or 1/3rd the amount.

Unlike many on a high tax bracket, I think we largely have it more right than wrong in this country tax rate wise, although of course it definitely isn't perfect. We have a good standard of living and relatively low disparity of these standards across income levels and one reason for this is the highish income taxes paid at the top end.

This IMO is too much though. By all means go hard and impose big penalties against people and businesses avoiding paying taxes locally for local operations, IMO there is almost no reasonable argument against this.

Increasing income tax rates at the top end by another 2% is stupid though.

As is a max of $3k deductibility for accounting fees

Again it clearly demonstrates a lack of understanding of who they are targeting, the ultra wealthy with super complicated structures used to a lvoid paying tax are paying a bucketload more than bloody $3k.

they're going to affect blue collar resource workers, high earning but often ultimately far from wealthy working professionals and others instead of the actual 1%ers

 

With all due respect, I think we have way more wrong than right. Oh where to begin...

 

Indeed, but the ABC certainly loved picking it up and running with it because it was in line with their lefty social agendas. This whole article is pushing the message that trusts are evil and being used by the filthily rich as tax loop holes. I wonder whether the reason the construction industry has a high proportion of trusts is that most self employed builders and partnerships (like architects) use trusts first and foremost as a legitimate business structure and an alternative to a Pty Ltd Co. Just look at the headline...trusts costing the taxman a staggering 3.5 billion. There are so many responses to the headline stats, but just think about this one for a minute... People with taxable incomes >= 500K (.43% of population) account for 51% of all trust distributions . That is a ridiculous statement because if it is money flowing into the trust then how and where did they get that data from (it just isn't easily determined) or if it is money distributed by the trust to an individual then that individual would be paying the normal income tax rates anyone else would earning $500k. Buy hey, never let facts get in the way of a good story especially when it comes to going after the rich, which apparently in Australia is when you earn more than $180k per year.

 

• Marginal income tax rate could do with a trim.
• The labor might be over-promising here in terms of both the mix (trusts, CGT, NG, marginal tax rates, foreign property ownership, super...) of tax reforms and the speed of delivery. There will be unintended consequences especially for property as it sits at the intersection of most of these reforms.
• It will be some time before the trust implementation details are available, but if NG is any guide, there will be some kind of grandfathering. Nevertheless it is well targeted, substantial and egalitarian tax recoup from a minority of liberal voters.

 

I haven't read the article, and can't be bothered to, but the title is just ridiculous to say trusts are costing the taxman $3.5billion. What about legitimate tax deductions for work related expenses – they are probably costing the ‘taxman’ more. Any legitimate deduction is costing the taxpayer – what about protective clothing, donations to charities etc

Also the statement that “People with taxable incomes >= 500K (.43% of population) account for 51% of all trust distributions is also meaningless for the argument that trusts are costing money because if your income was $500k and you received a distribution from a trust you would be paying tax at about 50% - the top marginal tax rate.

 

No real big surprise that they should go after trusts really. Seems only logical after tightening down on Superannuation, that its another logical area to go after.

 

The methodology for data collection have the above constraints as it is from ATO and ABS and there are some simplifying assumptions. The authors have tried to work around these constraints from the paper by having a conservative estimate which should explain the points raised .

• Assumption: In order to examine income from trusts we have to rely again on tax office data.That data shows distributions from partnerships and trusts combined.While
  it is not possible to get data that matches income quintiles we can at least obtain trust (and partnership) distributions by tax bracket. Incidentally trusts account for 70 per cent of the total business income from partnerships and trusts so the tax office figures should give us a good approximation to the pattern of distributions from trusts alone.
  
• Methodology: It is hard to imagine anyone would set up a trust unless there was another legitimate reason or there were tax advantages of at least one per cent of income. An alternative and very conservative estimate would be that the revenue foregone might be one per cent of the total business income received by trusts or $3.5 billion.

@Terry_w based on your experience with your clients is attribution of 1% saving to trusts structure, out of the total revenue to the trust, a conservative estimate ?
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Hopefully a better set numbers will emerge soon.

Nevertheless, labor is running with this report and looks like will form the policy based on these statistics.

 

Why do people assume it is only the rich who use Trusts???

 

Not an assumption...statistics from ATO and ABS show the skew towards high earnings. Does not preclude others from using trusts, but are a minority.

 

Tax savings are only 1 aspect of trusts. Other aspects are the asset protection and estate planning reasons.

But the tax savings can be considerable. I have done an example of setting up a testamentary discretionary trust in a will and someone leaving a $1mil investment property to a spouse and that spouse selling the property and making a modest $300k capital gain (after the 50% CGT discount) might pay $144k in tax. but if it was left to a testamentary discretionary trust and there were 4 minor children receiving the income the tax might be around $63k. That is about an $81k saving.

That is more than 50%!

 

• Thanks for confirming tax savings through a trust. In reality the tax lost via the trust's taxation loop holes will be way beyond the conservative 3.5 billion per annum that the study has reported. No one establishes a trust just to save 1 %.
  
• Regrettably in the din of politics of inequality other aspects of trusts might loose emphasis (Regulatory risk). But still the devil is in detail and hopefully the labor policy would focus mainly on tax avoidance and keep other aspects of trusts.

 

Is it tax lost or just tax not collected?

 

Seems the starting assumption is that all our income and assets belong to the ATO, so it's a question of how much they allow us to retain!

 

care to elaborate? keeping in mind the actual living conditions, public services/infrastructure and economy relative to other countries as well as in comparison to australia in the past i genuienly cant see how we are getting more wrong than right, that isnt supported by any tangible stat or intangible method i can recognise

genuinely would like to hear your opinion because i might have missed something and i def recognise your sentiment as this country and its govt (regardless of which of the 2 is in charge) often drives me up the bloody wall and def has room for improvement imo

 

considring less than half the working population pays more in taxes than they cost the country in infrastructure and services i dont think your statement is too accurate...

 

i geuinely think you are reading a lot more into a simple news article doing as it should, reporting on the news.

its important to recognise the difference between news reports and editorials/opinion pieces, you seem to be equating one to the other, read the article again, there is absolute nothing there to support what you are saying and once again, it was not an ABC report. It was a report by the Australia Insititute which funnily enough has been funded largely by the Murdoch extended family lat few years.

im not sure if you realise but the AFR, Fairfax papers etc and others all reported on this same TAI study/report on trusts and im amazed you think this released report, timed with the Opposition Leaders comments referring to this report and to wanting to make changes in line with some of the recommendations in this report is not newsworthy.

This info would have been newswortthy in almost any paper in the country, especially when you consider what dross is in there every day.

It is then up to us to decide if we are interested in the topic and if so if we agree or disagree with what the report is about. Attacking the messenger is a really odd way to go about things, unless you want ot end up one day where everyone only reads things they agree 100% with