Jenny Wong
CPA Australia says the Government’s exposure draft legislation on discretionary trusts, released yesterday is an improvement on the original proposal but leaves state stamp duty as the biggest remaining obstacle for businesses that restructure.
The draft introduces a new option allowing existing discretionary trusts to elect into a fixed-distribution regime and avoid the minimum tax without creating a new legal entity. CPA Australia Tax Lead Jenny Wong said the election option would provide flexibility for many businesses.
“The election option is a genuine improvement and responds to concerns raised by CPA Australia’s submission and the broader business community,” Ms Wong said.
“Businesses that elect into the fixed-distribution regime will be able to avoid the minimum tax without having to restructure into a new entity, which removes a significant source of complexity and uncertainty.
Ms Wong said Treasury had also addressed another major concern by indicating the election is not expected to trigger state and territory stamp duty consequences.
“Whether the election works is a separate question that will be debated during this very short consultation period,” Ms Wong said.
However, Ms Wong warned that businesses that choose – or are required to – restructure still face state tax consequences that are not addressed by the draft legislation.
“The Government has recognised that restructuring out of discretionary trusts requires transitional support, which is why it has proposed a time-limited restructuring rollover.
“What it does not address are the regulatory and state stamp duties.
“For those where restructuring is still the best option, the rollover relief helps address the income tax and CGT consequences barrier that has stopped businesses restructuring for decades. But the Commonwealth can only relieve Commonwealth taxes. The stamp duty barrier to restructuring still remains.”
“Good tax reform should not create avoidable barriers for businesses trying to comply with the law.”
“Two businesses in identical circumstances can face completely different outcomes simply because they operate in different states.”
Ms Wong said that if the Commonwealth could not resolve the issue with the states and territories, it should act within its own system.
“Make stamp duty and the associated restructuring costs deductible. That doesn’t remove the barrier, but it materially lowers it, and it’s within the Commonwealth’s power to do today.
“Deductibility is a practical answer while the longer conversation with the states and territories continues. It shouldn’t wait for eight jurisdictions to agree.
“Getting this right matters more than getting it done quickly,” Ms Wong said.