Trusts continue to be newsworthy, particularly when our political parties are in election mode and they want to appeal to the vast majority of Australians who are pay-as-you-go (PAYG) taxpayers.
The reform of trusts was put back in the spotlight when the Labor leader Bill Shorten announced that, if elected, the Labor Party would introduce a minimum tax of 30% on trust distributions to beneficiaries aged over 18 years. This proposal, which would apply from 1 July 2019, is directed at preventing income splitting.
Taxing trust income
There are existing rules that prevent a high income earner from channelling all or some their large salary (personal exertion income) to a trust and splitting the salary with family members who are on lower tax brackets, thereby reducing the overall tax paid on the income. But, provided that the individual is not trying to split personal exertion income with family members, income splitting using discretionary trusts is within the tax law if done properly.
Discretionary trusts can be particularly useful where, for example, high income earners have accumulated wealth and investments and do not want the investment income from these to be included in their assessable income. Using trusts for income splitting purposes in this way is legitimate. Readmore
