Australia: Trust tax crackdown fails to address any real mischief


  • Anyone with an interest in a non-fixed trust and financial advisors.


  • Labor has proposed a new tax on non-fixed trust distributions at a flat rate of 30%.


  • Consider how that proposed tax might affect the operation of a non-fixed trust.

How trusts ought to be taxed and in particular the income derived by them has resurfaced as a consequence of Labor's announcements in dealing with perceived inequalities delivered by these structures. Unless you are a 'farmer', it would seem that where you have a non-fixed trust in your group you are likely to be categorised as a high net worth tax avoider who is not paying their fair share. To nip this perceived inequality in the bud the proposition put forward by Labor, very broadly, is to tax trust distributions at a flat rate of 30%.

Why, you may ask? It seems unreasonable that a family receiving distributions of income from a non-fixed trust should not benefit from an adult taxpayer's tax free threshold multiple times. Some of the reasons that may be behind this drive are:

  • taxpayers earning a wage are not afforded such flexibility so it should be denied to all;
  • the fallacy that if you are in business then the corporate rate of tax should be enough – given the recent raft of changes adjusting the corporate rate of tax for small business to less than 30% means this is not true; and
  • income needs to be attributable to someone, somewhere without the benefit of 'running it through' anywhere.

The ongoing frustration with this type of thinking is the glaring omission to distinguish between the two types of income generally able to be derived at law. That is, income derived as a reward for personal effort and income derived by ownership of property. You cannot change who derives the former (typically an employee) but you can with the latter by changing the ownership of the property from which the income is derived. If the property is owned in a non-fixed trust, then the trustee can appoint that income amongst the beneficiaries as it sees fit and, if in a company, then the directors have the discretion whether or not to pay a dividend and in some cases, which of the shareholders a dividend will be paid to.

This distinction is well settled at law and arguments for income derived from property held in a trust or partnership having to be attributed to particular individuals, regardless of distribution (in the case of a trust) or ownership of the partnership interest (in the case of a partnership) have previously been refused by the Australian courts.

However, it appears that these distinctions are lost in the current debate, which is disappointing given that some of our policymakers had careers in private practice in a past life. It is important to appreciate that the distinction is a clear one at law but also very clear commercially.

A person rewarded for their personal effort is being rewarded just for that. They turn up when told, they perform the duties they are told and with all things being equal if they continue to do those things they will continue to be rewarded on that basis.

Income derived from property is not so easy to derive. It requires a degree of appetite for risk and commercial acumen to bring any number of variables and circumstances to a point that produces an income that exceeds associated expenses. The two are different in law and are different commercially and the current tax treatment reflects those differences.

It is difficult to understand what mischief is being remedied by having all trust distributions taxed at a minimum of 30%. Income derived from personal exertion, even if derived through a trust structure, will always be the income of the person performing the work and not able to be 'split' for taxation purposes. Alternatively, where distributions of income derived from trust property are made to family members in circumstances where it was never intended that they would see the benefit of those distributions (i.e., for predominantly tax purposes), the ATO has the power under the tax legislation to address such strategies.

For other individual beneficiaries, how is treating the income that they are entitled to receive in the same manner as every other personal taxpayer, a rip-off of some sort or a rort against the system? One could be forgiven for thinking that the intention is to introduce a tax hike, disguised as a crack down.

Tax reform is required but it needs to be done on a broad and efficient basis and not with knee jerk reactions and easy band aid solutions that continue to surface. Most importantly, such a review should be undertaken with knowledge of what the law currently provides and why and perhaps involving that part of the community that can shed light on its history, its deficiencies and bring meaningful, effective solutions to the table.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions