01 August 2017

In an extraordinary development in the debate over the reform of the taxation of discretionary trusts, the Australian Taxation Office has provided further evidence that wealthier Australians are using trusts to stay in lower tax brackets.

In answer provided to Labor Senator Louise Pratt through the Senate Economics Committee, the ATO has made it clear that trusts are being used to concentrate distributions or income split in a way that minimises tax.

The ATO provided figures and a response to the committee that explained the reasons for taxpayers spiking under the relevant tax thresholds.

In one of its responses, the ATO said:

The ATO undertook analysis of this in the past and found that taxpayers spiking just below thresholds at $37,000, $80,000 and $180,000 have a higher incidence of distributions from trusts. [Full answer attached]

An increase in the numbers of taxpayers just under tax thresholds as the ATO argues is partly due to the use of trust distributions is clear evidence that some are trying to avoid paying their marginal rate of tax.

Scott Morrison talks about an ATO Trust Taskforce but thats just enforcing the current law.

The current law is the problem its letting wealthy individuals use family and discretionary trusts to split their income and make use of the tax free threshold and lower income brackets of non-working family members.

Nurses and teachers and other PAYG earners simply cannot split their income to lower their tax and to make matters worse, theyre picking up the tab and paying more tax then they would otherwise to cover this tax minimisation.

This latest revelation from the ATO follows numerous tax experts coming out in support of Labors reform of the taxation of income splitting, labelling it well-targeted while not adding complexity.