John Howard, Peter Costello, Joe Hockey ... Every living Liberal treasurer but the latest has wanted to tighten the tax treatment of trusts.
Howard did. As more and more high earners used discretionary trusts to divert income to children, some very young with tax rates of zero, he amended the law in 1980 to tax payments to them at the top marginal rate, just as if they had been made to the people actually making the investments.
As prime minister he commissioned business figure John Ralph to conduct an inquiry that recommended he close the same loophole for adults by taxing payments to them at the company tax rate, even if (especially if) those adults were stay-at-home spouses on tax rates of zero. His treasurer Peter Costello took up the idea and then shelved it under pressure from other members of Parliament.
As shadow treasurer before taking the job Joe Hockey said trusts should be taxed as companies, regardless of the tax rate of the apparent recipient.
"Currently we have a maximum personal income tax rate of 47.5 per cent, a corporate tax rate of 30 per cent, and trusts which pay no tax in their own right but with income taxed in the hands of recipients," he told the Institute of Chartered Accountants.
"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."
He backed down a day later, but what he was proposing was a tax rate of 30 per cent, administered through the company tax system. Labor will do it through the income tax system, taxing distributions at 30 per cent. If you're on a higher tax rate, you'll pay at that rate. If you are on a lower rate (and if you are, you may well be getting the distributions precisely for that reason) you'll pay 30 per cent.
Farm trusts, charitable trusts and philanthropic trusts will be exempt. So too will non-discretionary trusts such as those used by disabled children.
The money raised, $1 billion per year, is probably less than half what's out there. But it's a start. And Bill Shorten's come around. When Hockey spoke out in 2011, Shorten attacked him for creating uncertainty, saying: "Used appropriately, trusts are a legitimate tax tool, not a form of tax avoidance."
In The Age and Sydney Morning Herald