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Congratulations! It’s a birth tax · The Front

• 0:03
  Speaker 1: From The Australian, here's what's on the front. I'm Claire Harvey.
• 0:06
  Speaker 1: It's Thursday, September 10, 2026. We've had the widow's tax
• 0:13
  Speaker 1: and the super tax. Now there's a birth tax hidden
• 0:17
  Speaker 1: in the federal government's shake-up to the way trusts work.
• 0:20
  Speaker 1: The Australians are revealing today the changes could make it
• 0:23
  Speaker 1: harder for tradies and small business owners to hand over
• 0:27
  Speaker 1: to a new generation. The journo breaking all these scoops
• 0:31
  Speaker 1: is Matt Cranston. And he's here in just a moment.
• 0:37
  Speaker 1: We need to have a serious discussion about family trust.
• 0:40
  Speaker 1: We may have seen the end of family trusts in Australia.
• 0:43
  Speaker 2: It makes the tax system fairer and stronger for workers, businesses,
• 0:47
  Speaker 2: first home buyers and future generations.
• 0:49
  Speaker 1: They have changed their mind yet again. The devil is
• 0:53
  Speaker 1: always in the detail. If you own a business or
• 1:00
  Speaker 1: work for yourself, chances are your accountant has recommended you
• 1:04
  Speaker 1: use a trust. It's a way of legally minimising tax.
• 1:08
  Speaker 1: Income is distributed to family members who are taxed according
• 1:12
  Speaker 1: to the amount they receive. This year's federal budget contained
• 1:16
  Speaker 1: a huge change, a new minimum 30% tax on income
• 1:21
  Speaker 1: from trusts. Safe to say it wasn't popular and it
• 1:24
  Speaker 1: led some trust holders to look at changing their structures altogether.
• 1:29
  Speaker 1: To fix that problem, the government's now drafted legislation that says, OK,
• 1:33
  Speaker 1: you can be exempt from the 30% tax, but only
• 1:37
  Speaker 1: if you fix the beneficiaries, who's inheriting what, up front.
• 1:41
  Speaker 1: But families do have a way of expanding.
• 1:45
  Speaker 2: So here's the problem.
• 1:48
  Speaker 1: Here's Matt Cranston.
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  Speaker 2: If you have a newborn child after 2029, you didn't
• 1:53
  Speaker 2: know it was coming, it's not in existence, this person's
• 1:56
  Speaker 2: not in existence yet. And you try and add them in,
• 1:59
  Speaker 2: then you have to revert back to paying the 30%
• 2:02
  Speaker 2: minimum tax and actually 47% in the first year. Now, look,
• 2:09
  Speaker 2: let me explain why they're trying to do this. They
• 2:12
  Speaker 2: think that when you have a discretionary trust, you can
• 2:16
  Speaker 2: change the amount that you distribute depending on the beneficiary's
• 2:22
  Speaker 2: rate of tax that they're being taxed. And that helps
• 2:25
  Speaker 2: you minimize your tax. Some people think this is a
• 2:29
  Speaker 2: bit dodgy. So they don't want this to keep occurring
• 2:32
  Speaker 2: because it's lost revenue for the government. But as I said,
• 2:36
  Speaker 2: the problem is now once you lock in who the
• 2:39
  Speaker 2: beneficiaries are and how much income they're going to receive,
• 2:42
  Speaker 2: that means you can't change it. And if you go
• 2:45
  Speaker 2: and add someone in afterwards, especially a newborn who you
• 2:49
  Speaker 2: didn't know existed today, then that revokes that exemption and
• 2:53
  Speaker 2: you're going to get charged the 30% minimum tax.
• 2:57
  Speaker 1: I think there might be an assumption that people who
• 3:00
  Speaker 1: have trusts are incredibly wealthy or they're using sort of
• 3:03
  Speaker 1: exotic tax minimisation structures, but these are often quite ordinary families,
• 3:08
  Speaker 1: aren't they? Farmers are people who use trusts a lot. Sure.
• 3:12
  Speaker 1: What sort of people do you think would actually be
• 3:14
  Speaker 1: affected by this?
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  Speaker 2: All this is really incredibly complicated, but people who have
• 3:20
  Speaker 2: small businesses, people who are electrician, plumbers, fruit shop, many
• 3:26
  Speaker 2: of them will have trusts. But yes, small business will
• 3:30
  Speaker 2: be affected. A person who's not trying to be some rich,
• 3:34
  Speaker 2: big tax dodger will be affected. But also, I imagine
• 3:39
  Speaker 2: tax dodgers will be affected too.
• 3:43
  Speaker 1: You broke a bunch of stories before the budget, which
• 3:46
  Speaker 1: the government didn't want you to break. You broke a
• 3:48
  Speaker 1: bunch of stories after the budget about things that were
• 3:50
  Speaker 1: there in the papers that had not been clearly revealed
• 3:53
  Speaker 1: on budget night. Was this one buried in all that
• 3:56
  Speaker 1: detail on budget night or is this the result of
• 3:58
  Speaker 1: tweaking that's happening kind of now?
• 4:02
  Speaker 2: Well, you don't know what the rules are until you
• 4:06
  Speaker 2: see the draft legislation. And the draft legislation is what
• 4:11
  Speaker 2: it is. when they say draft, this is what they
• 4:14
  Speaker 2: envisage to be what they want to introduce. So, I
• 4:18
  Speaker 2: can only imagine that if there's no one prosecuting it
• 4:22
  Speaker 2: or wanting certain changes to this draft legislation, then why
• 4:27
  Speaker 2: would you change it? So, I think You need people
• 4:31
  Speaker 2: like myself or all the tech, and I'm not saying
• 4:34
  Speaker 2: it's myself. You have to be very modest here and say, well,
• 4:38
  Speaker 2: it's not me. It's actually all the accountants, all the
• 4:41
  Speaker 2: business groups, all the people that have paid lots of money,
• 4:44
  Speaker 2: a lot more than I am, to discover these things
• 4:48
  Speaker 2: and make sure they're advocating on behalf of their members.
• 4:51
  Speaker 2: And without them spotting this stuff, you have to wonder
• 4:56
  Speaker 2: whether or not the legislation would be changed.
• 5:05
  Speaker 1: Coming up, what's the government actually trying to do here?
• 5:30
  Speaker 1: We've talked a lot on the front before, Matt, about
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  Speaker 1: The philosophical points, I suppose, that the government was seeking
• 5:36
  Speaker 1: to bring to bear when it brought down this budget,
• 5:38
  Speaker 1: one of them was creating the Working Australians tax offset, which,
• 5:42
  Speaker 1: as you said, gives them an architecture to basically reward
• 5:45
  Speaker 1: people who have a job, who are earning their money
• 5:47
  Speaker 1: through labour rather than through other kinds of money-making investments
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  Speaker 1: or whatever. What about this one? Is this, if this
• 5:54
  Speaker 1: was the intention all along, that trusts are going to
• 5:58
  Speaker 1: be limited in this particular way? What would be the
• 6:01
  Speaker 1: kind of philosophical or ideological purpose there?
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  Speaker 2: It's a very good question because the money coming in
• 6:10
  Speaker 2: to these trusts, I mean, people would disagree with me
• 6:13
  Speaker 2: on this, but it's arguable that it's interchangeable between income
• 6:17
  Speaker 2: from capital investment and income from labour. Right. some of
• 6:22
  Speaker 2: these trusts might have an electrician business or so forth
• 6:25
  Speaker 2: where a vast majority of it is labor and that
• 6:29
  Speaker 2: money goes into the trust and then is distributed. So
• 6:34
  Speaker 2: if you're putting a minimum tax on that, then you're
• 6:37
  Speaker 2: not really trying to balance labor income with capital income,
• 6:42
  Speaker 2: are you? But then the thing is a lot of
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  Speaker 2: trust income does come from assets and passive capital investments.
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  Speaker 2: So the, Central philosophy of the Labor government is that
• 6:56
  Speaker 2: they want to even up the tax treatment of labor
• 6:59
  Speaker 2: income with the tax treatment of capital income or income
• 7:04
  Speaker 2: derived from investments and assets. And this change in tax
• 7:09
  Speaker 2: on trusts is often... perceived or likened to really going
• 7:15
  Speaker 2: after these wealthy trusts that have a vaster proportion of
• 7:20
  Speaker 2: income coming from capital investments, from investments in assets, rather
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  Speaker 2: than just a business where the majority of the money
• 7:30
  Speaker 2: coming in is from a service or a labor income.
• 7:34
  Speaker 1: Yeah, so is there a sort of underlying philosophy here
• 7:38
  Speaker 1: that people are doing sort of crazy exotic things with
• 7:40
  Speaker 1: trust and adding more people to them as the years
• 7:43
  Speaker 1: go on and what the government is seeking to do
• 7:45
  Speaker 1: is go, okay, let's simplify everything here. Yes, you can
• 7:48
  Speaker 1: have a trust and we'll give you a tax advantage
• 7:50
  Speaker 1: for that, but you can't go fiddling with it too much.
• 7:53
  Speaker 2: Yeah, so I'm not saying this is what happens with trust,
• 7:57
  Speaker 2: but it's just one perception of what happens with trust
• 8:01
  Speaker 2: for the benefit of illustrating your question. But let's just
• 8:05
  Speaker 2: say that there's a trust and there's no really small
• 8:09
  Speaker 2: business in it. But what it's got is just a
• 8:13
  Speaker 2: lot of big passive assets. So it's, I don't know,
• 8:16
  Speaker 2: it's fully invested in big stock market or a big
• 8:20
  Speaker 2: startup company or that sort of thing. And the money's
• 8:23
  Speaker 2: just pouring in from these massive gains. Maybe it was
• 8:26
  Speaker 2: from a capital gain on, say, I don't know, an
• 8:29
  Speaker 2: investment in Nvidia or something like this. It's like rich
• 8:33
  Speaker 2: people with lots of assets and they're not working. It's
• 8:36
  Speaker 2: just all money coming in from passive investments. Now, what
• 8:40
  Speaker 2: you can do is instead of getting taxed at a
• 8:44
  Speaker 2: really high rate because if you own that just directly
• 8:48
  Speaker 2: for yourself, you'd get taxed really high because you're making
• 8:52
  Speaker 2: so much money, you get taxed at the high rate.
• 8:54
  Speaker 2: What you do is you go, well, let's put all
• 8:56
  Speaker 2: that money in a trust and then you can distribute
• 8:59
  Speaker 2: it out to different people who might have lower tax rates.
• 9:03
  Speaker 2: So you might distribute it to a kid who doesn't
• 9:07
  Speaker 2: even work. So they're not going to have a tax rate. Well,
• 9:10
  Speaker 2: they'll get the low tax rate when you finally give
• 9:12
  Speaker 2: them the money from the income. It's very complex, but
• 9:16
  Speaker 2: really it's essentially sort of like a way to do
• 9:19
  Speaker 2: income splitting or a way to minimize your tax because
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  Speaker 2: the tax you pay on the money you receive is
• 9:27
  Speaker 2: from investments in a trust is based on your personal
• 9:30
  Speaker 2: income tax rate, really. Because if you can distribute the
• 9:34
  Speaker 2: money that's just going to go to your wife or
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  Speaker 2: your kid, then you're happy with that, right? Because instead
• 9:38
  Speaker 2: of giving them money that you've already paid tax on,
• 9:41
  Speaker 2: why don't you just give them money that's pre-tax and
• 9:43
  Speaker 2: they can pay a lower amount on it than you
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  Speaker 2: have to?
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  Speaker 1: But the thing is that this is the system that
• 9:52
  Speaker 1: we have in Australia. If you go to an accountant
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  Speaker 1: who's smart, they're going to suggest all of these things
• 9:56
  Speaker 1: to do, as you've quoted Kerry Packer on this show before, saying,
• 9:59
  Speaker 1: if you don't do these things, you want your head read.
• 10:00
  Speaker 1: If you're paying more tax than the government's asking you
• 10:03
  Speaker 1: to pay.
• 10:03
  Speaker 2: And then you've got different trusts. You've got fixed trusts,
• 10:05
  Speaker 2: you've got discretionary trusts, you've got testamentary trusts. The main
• 10:10
  Speaker 2: big change is around this discretionary trust. That's where this
• 10:14
  Speaker 2: exemption lies. And the exemption is based on making a
• 10:19
  Speaker 2: discretionary trust more like a fixed trust, but without making
• 10:24
  Speaker 2: a fixed trust. And some people like saying, well, if
• 10:27
  Speaker 2: you're going to make the discretionary trust basically like a
• 10:30
  Speaker 2: fixed trust, what's the point? Just do a fixed trust.
• 10:34
  Speaker 2: So it is very complex. And a lot of the
• 10:38
  Speaker 2: accountants are still umming and ahhing about the legislation, about
• 10:41
  Speaker 2: the rules. These are the people that get paid a
• 10:44
  Speaker 2: lot of money to advise their clients on what's happening.
• 10:47
  Speaker 2: And even they are a bit confused by it. But
• 10:50
  Speaker 2: I don't want to dissuade people from venturing out and
• 10:54
  Speaker 2: trying to understand this thing. Because as I said, it's
• 10:57
  Speaker 2: really important that people know about this.
• 10:59
  Speaker 1: Well, we're very lucky to have you. Thank you very much, Matt. Thanks, Claire.
• 11:11
  Speaker 1: Matthew Cranston is The Australian's economics correspondent. You can read
• 11:14
  Speaker 1: all his scoops right now at theaustralian.com.au.