The Trust Tax Goes to Parliament: What's New in the Bill

Mia: Welcome to the podcast, our newsletter made easy. Please note, this podcast features AI-generated voices for your hosts, Mia Taylor... Leo: and Leo Baker, bringing you expert insights from the team at Aevum Accounting. Each week, we're here to help you confidently navigate the ins and outs of Australian tax, whether it's for your individual finances or the complexities of your business. Mia: We'll cut through the jargon to give you strategies for compliance, smart planning, and that ultimate peace of mind. Leo: So, if you're looking to understand your obligations, maximise your financial position, or simply gain clarity on your money matters, you're in the right place. Let's get started with our review of the week! Mia: This one comes from Chloe. She says it was a lovely team, they helped her complete her tax return fully through email, and it was great service. Leo: Thank you, Chloe. We'll keep this one just as efficient, because there's real news on the trust tax. Mia: Big news, actually. Harvey, the trust tax is in Parliament. Harvey: It is. The bill went into the House of Representatives on the fourteenth of October, the same day our last episode went out. Leo: The same day we said the bill hadn't been introduced. Harvey: The very same day. Last week I said the fix for the fifteen year exemption was sitting in a bill that hadn't gone in yet. It went in that day, so I'll come back to that one at the end. Mia: So is the trust tax law now? Harvey: No. It's a bill, so it's still draft law. It's been sent to a Senate committee, and that committee is due to report on the thirteenth of November. Leo: Then let's start with what hasn't changed since our episode in September. Harvey: Most of it. The tax still starts on the first of July, twenty twenty-eight. The trustee still pays 30% on the trust's net income, and the beneficiaries still include their share in their own returns. Mia: And they still get a credit for what the trustee paid? Harvey: They do, and it still can't be refunded or carried forward. If the credit is more than the tax you owe, the difference is simply gone. Leo: And what about bucket companies? Harvey: Still no credit at all. A company that receives trust income pays its own tax on top of the trustee's 30%. That hasn't changed. Mia: And the two ways out are still there? Harvey: Both of them. You can elect to fix your distributions and stay out of the tax, or you can restructure out of the trust with rollover relief. But it's one or the other, never both. Leo: Remind us how the election works. Harvey: A trust that exists on the first of July, twenty twenty-eight can make one election, in that first year only. The trustee nominates the beneficiaries and a fixed percentage for each. Distribute the way you nominated, and the minimum tax doesn't apply. Mia: And if you break it? Harvey: The election is revoked and can never be made again. For that year, the trustee pays the top rate plus Medicare on all of the trust's net income. That's 47%. Leo: Which is where the bill has something we didn't cover in September. Harvey: Yes, and it's the most useful thing in it. In September I said you would not want a bookkeeping error to trigger that penalty. The bill now gives you a way to ask for help if one does. Mia: What kind of help are we talking about? Harvey: If a distribution doesn't match the nomination, the trustee can apply to the Commissioner to decide it would be unreasonable for the election to be revoked. If the Commissioner agrees, the election stays in place and the penalty doesn't apply. Leo: So one slip in the minutes isn't fatal. Harvey: Not necessarily. The explanatory memorandum says the discretion is meant for inadvertent errors or genuinely exceptional circumstances. Its examples are a small mistake that made no real difference, and a trustee who became ill not long before the thirtieth of June. Mia: But it's not a free pass either? Harvey: No. If the trustee decides to distribute differently because the family's circumstances have changed, that's a choice, not an error, and the discretion isn't meant for it. And you have to apply by the deadline for notifying the Commissioner, so you can't sit on it. Leo: Does it cover everything that can revoke an election? Harvey: No, and this is worth knowing. It covers a distribution that doesn't match, and one other case I'll come to. It doesn't cover a nominated company being deregistered, or changing shareholders other than on a death or a separation. Those still revoke the election automatically. Mia: You mentioned one other case. Harvey: Charities. In September I said you could only change the percentages if a nominated beneficiary died or two of them separated. The bill also lets the trustee nominate a share for a class of charities. Leo: How does a class of charities work? Harvey: The trustee sets one percentage for registered charities and deductible gift recipients as a group, and the charities that actually receive it can change from year to year. They have to be beneficiaries under the deed on the first of July, twenty twenty-eight. Mia: So a family that gives to a different cause each year can still elect. Harvey: Exactly. But each charity has to actually be paid by the end of the following year. If it isn't, the election can be revoked going right back to the year it was entitled. That's the second case the Commissioner's discretion covers. Leo: And what about sporting clubs? Harvey: They can't be in the class. Only registered charities and deductible gift recipients can. Mia: Now the other path, restructuring. What's different there? Harvey: The window is the same, the first of July, twenty twenty-seven to the thirtieth of June, twenty thirty. The change is about where the assets can go. Leo: In September you said a single new entity. Harvey: I did, and the bill is clearer than that. The assets can go to an entity you already have, with its own assets and history, not just a brand new one. Mia: Are there still conditions on it? Harvey: Plenty. It's still all of the trust's assets, apart from a short list of exceptions, to one entity. Anything the trust picks up after the first transfer has to go across by the thirtieth of June, twenty thirty as well. And by the end of that period, the trust can't still be holding shares or units in the entity that took the assets. Leo: And stamp duty? Harvey: No change there. The rollover doesn't touch stamp duty, GST or FBT. They apply as normal, and on a trust that owns land, the duty bill is often what decides it. Mia: So which way are the trusts that do act expected to go? Harvey: Treasury has put its working assumption in the explanatory memorandum. For business trusts that need a lot of advice, it assumes somewhere between seventy and ninety per cent will elect, and only ten to thirty per cent will restructure. It also says nobody can predict it accurately. Leo: So the election looks like the main road. Harvey: For those that act, probably. Most trusts are expected to do neither. But the election is rigid, so it has to suit you for good, not just for next year. Mia: Now, you said you'd come back to the fifteen year exemption. Harvey: Right. Last week, on the business side of the capital gains reset, I said the fifteen year exemption was the one small business concession not protected through the first of July, twenty twenty-seven. Leo: The one that can wipe out the whole gain. Harvey: That's the one. Owned for fifteen years, fifty-five or over and retiring. The fix Treasury had drafted is now in this same bill. Mia: So what does the fix actually do? Harvey: If it passes, the reset is ignored when you work out whether the exemption applies. And the age test, the retirement test and the others are applied when you actually sell, not on the day of the reset. Leo: Can you give us an example of that? Harvey: The explanatory memorandum has one. A woman has owned her company since two thousand and three. She's fifty-four when the reset happens, and fifty-six and retiring when she sells. She's tested at the sale, so the exemption can cover the gain, even though she was too young on the day of the reset. Mia: And when would that start? Harvey: From the twenty twenty-seven, twenty-eight year, the same year as the reset, if the bill becomes law. Until then, it's still a bill. Leo: Is anything still missing? Harvey: One thing I mentioned last week. Some rollovers after the reset, like a relationship breakdown or assets passing from a deceased estate, could trigger the gain the reset has been holding over. This bill doesn't fix that. The government says it's coming in a further bill. Mia: Does the trust restructure reset the fifteen years? Harvey: Good question, and no. If you restructure under the trust rollover, the asset keeps its original ownership date for the fifteen year exemption. The clock doesn't restart. Leo: So, Harvey, what should a family with a trust do now? Harvey: Three things. Get the trust deed out, because for the election every nominated beneficiary, and any charity, has to be in the deed on the first of July, twenty twenty-eight. If the trust owns land or business assets, get the stamp duty number for a restructure, because that usually decides it. And don't restructure on the strength of a bill. Mia: Even though the window opens next July? Harvey: Even then. The Senate committee reports on the thirteenth of November, and the bill can still change. Model both paths now, and decide when it's law. Leo: Harvey, thank you. Harvey: My pleasure. And if you're already a client of Aevum Accounting with a trust, you don't need to chase this. If and when it becomes law, the team will contact every client with a trust to book a meeting and go through the options properly. Mia: So let's recap. The trust tax is in Parliament, it isn't law yet, and a Senate committee reports on the thirteenth of November. Leo: It's still 30% at the trustee from the first of July, twenty twenty-eight, still no credit for bucket companies, and still elect or restructure, never both. Mia: If an honest mistake breaks the election, the trustee can ask the Commissioner not to revoke it. And a share can go to a class of charities that can change each year. Leo: A restructure can go into an entity you already have, stamp duty still applies, and the fifteen year exemption fix is in the same bill, tested when you sell. Mia: If you're not a client yet and you'd like the team to work through the election and the restructure for your trust, head to aevumaccounting.com.au and book a session. Leo: Or head to aevumaccounting.com.au. And if you're already a client, you'll hear from us if and when this becomes law. Mia: Before we go, a quick but important reminder. The information shared today is for general informational purposes only, and does not constitute specific tax or financial advice. Leo: Everyone's situation is unique, and tax laws are complex. For personalised advice tailored to your situation, we always recommend consulting with a qualified professional. Mia: Until next time, stay savvy, stay proactive... Harvey: And if you're electing, make sure the charity actually gets paid!