ACOSS welcomes the introduction of a bill today to reform the taxation of discretionary trusts and private companies.

High-income earners routinely exploit discretionary trusts to cut their tax rates well below those paid by average workers, depriving the government of billions in revenue.

The legislation introduces a minimum 30 per cent tax on discretionary trust income, helping close the gap so that people on high incomes contribute a fairer share towards services upon which we all rely. ACOSS commends the Albanese government for acting to close this long standing loophole in our tax system.

ACOSS CEO Dr Cassandra Goldie said the proposed federal tax reforms are an urgent matter of basic economic fairness, and the current system is being exploited.

“It is not fair that someone earning $200,000 or more, who would usually pay 47 per cent tax on extra income, can bring that rate down to 30 per cent or less by passing income through a discretionary trust to their adult children or a private company, while an average worker pays tax at a rate of 30% of the next dollar earned,” Dr Goldie said.

“This reform helps fix this severe unfairness in the system so people on higher incomes contribute according to their ability to pay.

“We recognise that trusts and private companies have genuine uses when used appropriately, but they are widely used by investors and business owners as a way of avoiding contributing their fair share of tax. 

“Much needed revenue that is lost to the current tax settings should be funding essential support services the community heavily relies on, like healthcare, income support and housing people can actually afford.”

ACOSS published case studies today of some of the many ways discretionary trusts are used to avoid tax. For example, a father with income of $200,000 passes an additional $100,000 of business or investment income through a trust to their adult child on a low income, cutting the tax paid on it by $18,700. The remainder is then paid back to the father.

Key facts:

• More than one million trusts operate in Australia, around 840,000 of them discretionary, alongside more than 1.1 million private companies
• Discretionary trusts used for passive investment held $1,130 billion in assets in 2022
• The wealthiest 10% of households, with net worth above about $2.3 million, hold around 90 per cent of private trust wealth
• The highest 10% of income earners received 63 per cent of all trust and partnership income in 2022-23, around $40 billion
• For people earning over $1 million a year, around a quarter of income arrives through a trust or partnership, against 4 per cent for those on $60,000 to $150,000