To save taxpayers money, the Labor party intends to roll back recent changes to tax law that allowed family trusts to make distributions to former stepchildren, former spouses and lineal descendants without incurring penalty tax at the top marginal rate.
The changes were expected to cost taxpayers $8 million a year from 2007-08, and Labor has targeted this in its submission to federal Treasury as a potential saving.
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But tax experts have condemned the reversal of the former Coalition government’s amendments announced in the budget last year.
Sue Prestney, Insitute of Chartered Accountants in Australia SME business issue spokeswoman, says it is a disappointing decision. “People will have acted on the basis of new legislation. It’s effectively retrospective for people who have planned on the basis of what is there.”
She doubts the rollback by Labor will result in significant savings to the taxpayer. “People will not distribute from certain members of their family, so whether they will raise revenue is not clear. People just won’t make those distributions to great grandchildren.”
She says Labor’s rollback is “a bit mean-spirited. We would hope there will not be a witch hunt on family trusts, as we have seen before.
“There’s a perception by some people that trusts are just a magic tax minimisation strategy rather than being there for valued commercial and family reasons. There is a perception that anything that is easier for trusts is somehow bad for revenue,” Prestney says.