‘Facilitating tax avoidance’: trust growth out of control, think tank says

Trusts may be used to undermine reforms to capital gains and superannuation taxes, causing significant inequality in the country’s current tax system, according to The Australia Institute.

“Trusts help the wealthy avoid taxes and protect assets from creditors … Revenue equivalent to nearly a quarter of the Australian economy now flows through some form of trust,” the institute said.

According to the ATO, there were 326,000 in 1990–91 compared to over one million by 2022–23. The Australia Institute noted that trusts are concentrated in sectors such as rental, real estate, construction, and professional services, which it said reflects their role as a common SME vehicle and as part of family wealth structures.

The discourse on the impacts of the 30 per cent discretionary trust minimum tax is mixed, with some believing that it is too high, and killing bucket companies.

Despite this, The Australia Institute advocated for trusts to be reined in, pointing to the use of discretionary trusts for protecting assets from creditors during bankruptcy, “protecting ‘family’ assets when marriages dissolve, and facilitating tax avoidance”.

The institute said that no targeted response to the use of trusts for tax avoidance or evasion has been forthcoming, resulting in the rapid growth in the use of trusts and, in turn, the amount of tax avoided.

Ten years ago, UNSW associate professor of taxation Dale Boccabella estimated a $2 billion per annum revenue loss due to the Commonwealth’s reliance on family trusts.

“If this figure grew in line with nominal GDP, then today it would be $3.2 billion, and if it grew in line with the number of trusts, then it would be $2.2 billion,” the institute said.

The institute found that the top 10 per cent of income earners received 63 per cent of all benefits from the use of trusts, which it said shows “extreme bias in the benefits of using trusts towards the highest income earners”.

“Rapid growth since then, and other changes in CGT, superannuation, and tax avoidance measures, make fixing the tax treatment of trusts all the more important.

The government can collect billions of dollars per year in revenue, reduce inequality, and simplify the tax system, all by simply implementing a change that has been seen as necessary and desirable for decades.”