Thursday, April 07, 2011

Trusts: Hockey shows courage

Coalition Treasury spokesman Joe Hockey has opened up a war front with the National Party and Australia’s 663,000 trusts, declaring that family and other trusts should be taxed in the same way as companies.

The Shadow Treasurer’s declaration to a tax conference in Melbourne reopens a wound apparently closed after former prime minister John Howard backed down on a proposal to tax trusts in response to National Party pressure a decade ago.

Speaking to the Institute of Chartered Accountants Mr Hockey said despite decades of attempts to simplify tax it was more complex that ever with more than 7000 pages of laws.

“Currently we have a maximum personal income tax rate of 47.5 per cent including the Medicare levy and the Flood Tax; a corporate tax rate of 30%; and trusts which pay no tax in their own right but with income taxed in the hands of recipients,” he said.

“The difference in tax rates according to the type of legal entity seems to have no basis in logic... It would be simpler and more logical for all three types of legal entity to have the same or a similar tax rate.”

“Standardisation would involve taxing trusts in their own right and at the same rate as companies.”

Acknowledging the move would not be universally welcomed, Mr Hockey said it was “likely to be contentious but is worthy of serious consideration.”

In 2001 Mr Howard promised to tax trusts in return for Senate support for his business tax reforms. He shelved the idea after an avalanche of criticism from the National party and farmers in a decision estimated at the time to cost the budget $110 million.

Tax Institute general counsel Robert Jeremenko said that while it was good to have a shadow treasurer who spoke about tax, the concept of taxing trusts as companies had been rejected by the recent Henry tax review.

‘‘The horse has bolted on this idea and it bolted under the former Howard government,’’ Mr Jeremenko said.

He said it was more important to fix the existing trust law.

The Gillard Government has committed itself to retaining the tax status of trusts.

‘‘People want certainty in the tax system and Mr Hockey’s proposal just creates more uncertainty,’’ assistant Treasurer Bill Shorten said yesterday. ‘‘Used appropriately, trusts are a legitimate tax tool, not a form of tax avoidance.’’

Earnings made by trusts are untaxed within the trusts but taxed as apid out at the recipients' marginal rates of tax. Recipients can be children or low-earning partners in a marriage on low tax rates.

The Henry Review deemed this “flow through” treatment appropriate and recommended only that the rules governing it be simplified and rewritten.

Tax statistics released yesterday show only 27,000 of Australia’s 663,000 trusts are rural in nature. The most common service the real estate industry.

The office of Nationals leader Warren Truss was unaware of Mr Hockey’s comments when approached yesterday. Mr Truss was in North Queensland and uncontactable.

Published in today's SMH and Age

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