The government has released exposure draft legislation in regard to its plan to introduce a 30 per cent tax on discretionary trusts, which includes a new method to allow these vehicles to be exempt from the impost if they elect to make fixed distributions to pre‑nominated beneficiaries.
The release of the draft legislation and the new option was announced by Treasurer Jim Chalmers late last week when he stated the election method was being offered in place of rollover relief for trusts that would have to restructure to a fixed trust or company structure.
“The draft legislation builds on the consultation paper released in July and includes expanded options to limit or eliminate restructuring costs for small businesses and others using discretionary trusts,” Chalmers said.
“This includes a new option for discretionary trusts to be exempt from the minimum tax if they elect to make fixed distributions to pre‑nominated beneficiaries as an alternative to rollover relief. The election would not require a restructure and is not expected to result in state and territory stamp duties.”
He added charitable trusts, special disability trusts, superannuation funds, deceased estates and all discretionary testamentary trusts established for genuine testamentary purposes would continue to be excluded from the tax, which is set to apply from 1 July 2028.
CPA Australia tax lead Jenny Wong said the election option was an improvement on the original trust tax proposal presented in this year’s federal budget.
“Businesses that elect into the fixed-distribution regime will be able to avoid the minimum tax without having to restructure into a new entity, which removes a significant source of complexity and uncertainty,” Wong said, adding this option was not expected to trigger state and territory stamp duties.
However, she pointed out this relief was unavailable to businesses that chose or were required to restructure.
“The government has recognised that restructuring out of discretionary trusts requires transitional support, which is why it has proposed a time-limited restructuring rollover. What it does not address are the regulatory and state stamp duties,” she said.
“The commonwealth can only relieve commonwealth taxes. The stamp duty barrier to restructuring still remains.”
She said where businesses faced any of those charges, they should be deductible to reduce the cost impact of a restructure.
“Deductibility is a practical answer while the longer conversation with the states and territories continues. It shouldn’t wait for eight jurisdictions to agree,” she said.
The SMSF Association also noted the release of the draft legislation and called on members to provide feedback on any practical implications, particularly where they may interact with funds, retirement and estate planning, fixed trusts and testamentary trusts.
“We would particularly welcome examples of unintended consequences, implementation difficulties or areas requiring greater clarity,” the association told members.
Jason Spits
SENIOR JOURNALIST
Jason is a senior journalist with Benchmark Media and writes for the selfmanagedsuper website and magazine and smstrusteenews website. He has covered financial services since 1999 and has written about life insurance, superannuation, investment management and financial advice, in both a freelance and in-house capacity, and also did a brief stint as a media manager for an industry association. He has been the editor of trade titles Money Management and Financial Standard, and was most recently senior journalist with life insurance title Riskinfo.
Articles by Jason