Addressing the NSW Labor Conference in Sydney, the Leader of the Opposition said the tax crackdown would raise $17.2 billion over 10 years and affect 2% of Australian taxpayers.
The new tax policy would apply for discretionary trust distributions to beneficiaries over 18 years of age, and would not apply to farming or charitable trusts, according to Labor.
As it currently stands, discretionary trusts allow high-income earners to distribute money to their family members who are on lower incomes and tax rates, and by doing so, reduce their own tax payments.
Labor’s argument is that although this process of “income splitting” is legal, it effectively acts as a subsidy for wealthy Australians, and is unfair because average workers cannot split their income in the same way.
“This is about trusts serving their true purpose, so distributions are taxed fairly,” said Mr Shorten.
“It’s about delivering a level playing field, so high-income earners can’t opt-out of paying income tax.”
Mr Shorten’s plan has, unsurprisingly, received a lot of criticism from the Coalition, and even small business representatives.
.@ALeighMP: Labor's 30 per cent tax rate on trust distributions is 'very simple and straightforward.' MORE: https://t.co/SetBbRlBtg pic.twitter.com/RiEDfuY7e3
— Sky News Australia (@SkyNewsAust) July 31, 2017
Small business to bear the brunt of Shorten’s trust tax
Treasurer Scott Morrison has come out swinging against Labor’s family trust tax plan, tweeting that the Labor party have “given up on growth”.
Labor's Trust tax doesn't create one job or increase one wage. Labor have given up on growth.
— Scott Morrison (@ScottMorrisonMP) July 30, 2017
“Labor think that only one member of the family is part of the family business,” Mr Morrison tweeted.
“If Bill Shorten is elected, it will be whacking day for small businesses.”
Mr Shorten admitted that about 200,000 of the 315,000 trusts that would be affected by the minimum 30% tax on discretionary payments to trustees were from small businesses.
Labor has questioned whether many of these small businesses are the type people would imagine, or are high net worth businesses such as doctors, accountants and lawyers.
Council of Small Business Australia (COSBOA) members have expressed their displeasure with Labor’s plan.
COSBOA said if they want to correct the behaviour of a few who are abusing trust structures, Labor should look at the tax system as a whole.
“Attacking small business through changes to the family trusts is grossly unfair, particularly given that large corporations and unruly Unions pay zero tax,” said members of COSBOA.
“This is clearly just a case of the Labor Party going after hard working small business owners (including tradies, farmers and shopkeepers) because they are a ‘soft target’ – and don’t have the money or the time to defend themselves; while big business and big unions continue to minimise their taxes without consequence.”
Speaking to ABC Radio, Shadow Treasurer Chris Bowen defended Labor’s scheme, saying it is not an attack on small business.
“I think most small businesses would look at this and say well if people are distributing to university students or their spouses or their parents and asking their parents to use that money on perhaps something else for the family, that is just an artificial mechanism to reduce your tax, and when one part of the economy can use an artificial mechanism to reduce their tax, that puts more pressure on the rest of the economy, including small business,” he said.
Liberal Party MP Craig Kelly has also come out against the proposed crackdown on income splitting, saying it is a “complete fraud” and the idea that there is tax avoidance is “simply incorrect”.
“Many businesses act as a family unit, and each individual in the family is still taxed – they still pay their people the full rate of marginal tax,” said Mr Kelly.
.@CraigKellyMP: @billshortenmp's plan to crack down on income splitting is a 'complete fraud.' MORE: https://t.co/SetBbRlBtg pic.twitter.com/f6iC6VOqSB
— Sky News Australia (@SkyNewsAust) July 31, 2017
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