ACTU denies employer group ‘scaremongering’, calls for dismantling of trust tax loopholes

In its latest submission to the Senate inquiry into companion discretionary trust tax bills, the Australian Council for Trade Unions reinforced its support for a 30 per cent minimum tax aimed at bringing obligations in line with income tax.

In its 29 October submission to the Senate economics legislation committee’s formal inquiry into the government’s landmark legislation, the union urged the Senate to pass the legislation on the basis that the bill is a step towards tax equality for ordinary wage earners.

In “Rebalancing the tax system: addressing the unequal tax treatment of wages and wealth”, the peak body explained that the tax structure undermines equity and contributes to inequality in Australia.

Core to the Australian Council for Trade Unions’ (ACTU) argument is that the current system allows the nation’s highest earners to flout tax obligations by splitting income among family members within lower tax brackets, noting that a $90,000 wage earner could pay up to $10,000 more in tax than a household receiving income through a discretionary trust.

The submission also noted that the nation currently has 20 times more discretionary trusts per person than the UK following the latter’s loophole removal, and that Australia’s figures are likely “attributable to the favourable outcomes they generate”.

In addition, while 90 per cent of all discretionary trust assets are held by Australia’s wealthiest 10 per cent, families with discretionary trusts faced, on average, a tax rate 4 percentage points lower than those who did not use a trust.

In acknowledgement of common arguments against the change, namely the impact on small businesses as noted by CPA Australia, the ACTU noted that 90 per cent of small businesses will be unaffected by the reforms, and that 95 per cent of individual taxpayers also do not receive trust income.

The submission said the system “unfairly shifts responsibility for paying for essential government services away from high-income and high-wealth households and towards working families – services that benefit all Australians – undermining the sustainability of Australia’s revenue base and eroding trust in Australia’s institutions”.

“The use of trusts further undermines vertical equity by allowing high-income and high-wealth households to avoid paying the higher marginal tax rates that they ordinarily would under a progressive tax system, while also increasing inequity in Australia,” it said.

The ACTU surmised that in Australia, trusts are used as a minimisation too to “renege” on responsibilities.

Reinforcing that the reforms will be a step towards fairness and equity in the tax system, the ACTU said the legislation will also fund previously announced tax cuts for working people, including the Working Australians Tax Offset, the $1,000 Instant Tax Deduction, and the reduction on payable income between $18,201 and $45,000.

It added: “The measures also provide sensible roll-over relief to allow small businesses and others that wish to restructure from discretionary trusts into another entity type.”

Noting the option for trustees to elect to nominate distributions to the Australian Taxation Office, and the roll-over relief that will apply from July 2027, the body argued that trustees will have ample time to avoid disruption.

Further, ACTU analysis determined a total compliance cost of the proposed changes as just 0.1 per cent of annual income from a trust.

ACTU secretary Melissa Donnelly said: “Australian Unions urge all senators to do the right thing for workers and close this unfair tax loophole. The wealthiest 10 per cent, those with a net worth above $2.3 million, own 90 per cent of discretionary trust assets in Australia.

“The vote on these laws will be a clear test for politicians on whose side they’re on: Australian workers, or the wealthiest and most powerful.”

Submissions to the economics legislation committee closed on 29 October, with the report due 13 November.

The reforms are planned to take effect from July 2028.

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