Author Topic: Labour's proposal to limit family trusts  (Read 1452 times)

FFA

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Labour's proposal to limit family trusts
« on: July 30, 2017, 06:44:09 AM »
What do people think? Personally I tend to agree with Shorten's proposal. I might think differently if I had a family trust though!

aGracefulStomp

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Re: Labour's proposal to limit family trusts
« Reply #1 on: July 30, 2017, 06:59:04 AM »
I have a trust structure that I literally just set up last year and now have assets in it.

Under the minimum tax rate, if I retire on $45,000 then I'll have to pay double the tax.

So my response would be to stop contributing assets to the trust and hold new assets directly myself. As I'm relatively early in the investing game and have like 80% of my contributions to make, I would still hold most of my assets myself ...  it would just be more annoying than anything else - eg having to do the trust tax return with no advantage in sight and unable to pull the assets out without incurring a capital gains tax.

Maybe the next crash will bring the assets below the purchase price so I could sell everything and avoid a capital gains tax! (and then purchase the same assets back under my own name). Or maybe they would allow people to transfer the assets out of trusts to the beneficiaries without incurring any capital gains tax, like a clemency period?

I don't think there's much hope that they'll only apply the new tax rate going forward rather than retrospectively is there ... :/

In saying all that, I think trusts are definitely a gift to the rich. I think it's a good thing to do in terms of social equality.

I wonder what will happen for all those that have retired on income from a trust structure who are now going to have to pay extra tax. Anyone here in that position?
« Last Edit: July 30, 2017, 07:14:21 AM by aGracefulStomp »



marty998

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Re: Labour's proposal to limit family trusts
« Reply #2 on: July 30, 2017, 03:54:12 PM »
I agree with the proposal too. By all means have a Trust for legitimate business / asset protection reasons, but if the tax advantages are the dominant reason then it needs to be addressed.

I worked for a tax accounting firm years and years ago. The partners each held their share of the partnership through a combination of personal names, companies and Family Trusts. They would first pay themselves a wage up to an effective tax rate of about 25%, they would then pay dividends to themselves out of some of the profits taking the effective rate up to about 30%. The remaining profits they would stream through a family trust to split with their non-working spouses.

All earned well over $300k per year, none of them paid more than an effective rate above 30%.

The rules are rigged and need to be changed.

mjr

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Re: Labour's proposal to limit family trusts
« Reply #3 on: July 30, 2017, 03:57:11 PM »
OK, so let's say he changes the rules so that distributions from family trusts are taxed at 30%.

At it's simplest, this becomes like franking - the beneficiaries would be able to claim the tax paid by the trust and just pay the balance of their marginal rate.  Doesn't make a difference to the tax collected, just more paperwork.

So, now assume the rules are set such that the beneficiaries cannot claim the tax paid by the trust.  This does make a difference to the tax collected, but now trusts are seriously disadvantaged compared to companies.

Net effect, people bail out of trusts and incorporate instead.  Lots more admin, bugger all additional tax revenue.

The ALP has clearly decided to focus on "inequality" as one its major election themes and is looking at more policies to take money off people and redistribute it.  Class warfare, pure and simple.  No, I don't have a trust and I don't receive money from a trust.  Nor will I ever.

bigchrisb

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Re: Labour's proposal to limit family trusts
« Reply #4 on: July 30, 2017, 04:01:56 PM »
I'm frustrated by the proposed changes. I don't object to the principal, but depending on the implementation, it may be very punitive. It's yet to be seen how it will be implemented, and if this will be treated like company taxation, with an equivalent to franking, or indeed if it will be more than a thought bubble.

I'm alert, and prepared to be alarmed. However, I'm yet to see what the actual impacts are. In accumulation, it would have made minimal difference to me, as I was streaming most income to a company at a similar tax rate. In drawdown, we will see what it means.

It probably means that I'll be streaming to the company as I have been, then drawing a franked dividend. It buggers the income smoothing between a couple with variable incomes though. Very frustrating.

marty998

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Re: Labour's proposal to limit family trusts
« Reply #5 on: July 30, 2017, 04:03:17 PM »
Class warfare, pure and simple.

No I don't agree with this. It's not "class warfare" if you are simply trying to implement the existing progressive tax system and close down options to get around it.

As a famous investor once said, there's a class war going on all right, and rich white dudes are winning it.

mjr

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Re: Labour's proposal to limit family trusts
« Reply #6 on: July 30, 2017, 04:32:01 PM »
Most trust legislation has been around in its current form since the early 70s.  Stable and legal for all this time.  Suddenly Bill mounts his high horse, declares inequality is worsening and we're going after those rich folk with their trusts (like Turnbull !) and we'll get more money out of them "for the budget".
This is the naked political strategy du jour.
Any further discussion along these lines should be moved to a political off-topic thread.

BattlaP

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Re: Labour's proposal to limit family trusts
« Reply #7 on: July 30, 2017, 04:45:38 PM »
But.. inequality is worsening? It's not a policy in isolation, they've got plenty of other decent proposals regarding negative gearing, capital gains, etc. If 'naked political strategy' means proposing to deal with issues that the electorate are concerned with, I'd like to see more of it.

FFA

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Re: Labour's proposal to limit family trusts
« Reply #8 on: July 30, 2017, 04:59:49 PM »
I believe the Lib's, John Howard himself, started down this path of closing the loophole by taxing distributions to minors at the top marginal rate. So seems to me this is just a step further, but not really something new.

bigchrisb

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Re: Labour's proposal to limit family trusts
« Reply #9 on: July 30, 2017, 06:05:46 PM »
My biggest fear is that it just creates a bigger work flow for accountants.  For example, pay "employment wages" to your beneficiaries up to whatever the breakeven threshold works out to be, then trust distributions after that.  Our tax system is already too complex - there are good reasons to simplify it, as opposed to making it more complex.

Increase and broaden taxes on consumption, increase and broaden taxes on wealth (including the PPOR), and lower taxes on active income (be it business or wage earnings) to encourage productivity.  Alas, most reform at the moment is political tinkering adding complexity to the tax system, rather than root and branch reform to simplify and increase actual equity.

aGracefulStomp

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Re: Labour's proposal to limit family trusts
« Reply #10 on: July 31, 2017, 02:45:22 AM »
It probably means that I'll be streaming to the company as I have been, then drawing a franked dividend. It buggers the income smoothing between a couple with variable incomes though. Very frustrating.

Just making sure I understand franking credits correctly - if you stream through a company wouldn't you still end up having to pay at least 30% tax? Franking credits make sure that you don't have to pay tax twice on the amount, but at best you still end up paying at least 30% tax on all your distributions (and thereby miss out on the tax free threshold, and 19% second threshold).



mjr

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Re: Labour's proposal to limit family trusts
« Reply #11 on: July 31, 2017, 03:05:48 AM »
Franking credits are refunded from the person-receiving-the-distributions' tax payable.  If said person has no other income and the amount of the distribution + the franking code is less than the tax-free threshold, then all of the 30%  franking credit will be refunded.

Sure, the trust would pay the 30% tax, but what the ATO takes with one hand would be given back with the other, in this extreme example.

Spiffsome

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Re: Labour's proposal to limit family trusts
« Reply #12 on: August 03, 2017, 06:33:07 PM »
I'm finding it hilarious, since my husband and I just bought an investment property through a trust, hopefully the first of several. I'm wondering if I should set up a branch office in Singapore, do some off-shoring of our profits and try to get that loophole shut down too. 

marty998

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Re: Labour's proposal to limit family trusts
« Reply #13 on: August 04, 2017, 06:26:41 PM »
I'm finding it hilarious, since my husband and I just bought an investment property through a trust, hopefully the first of several. I'm wondering if I should set up a branch office in Singapore, do some off-shoring of our profits and try to get that loophole shut down too. 

There are some rules in place to capture that already - you may fall foul of controlled foreign companies and trusts rules.