Update: Trust attack averted (for now)
Last week we advised on the threats facing discretionary trusts as a structuring tool, particularly in light of the Australian Labor Party’s (ALP) plans should they win power at the federal election on 18 May 2019. As we now know, the Liberal-National Coalition defied all expectations not only to retain power but to be able to form government in its own right. The incumbent Morrison government campaigned against the ALP’s policies of abolishing negative gearing, reducing surplus franking credits to low income earners, reducing the CGT discount from 50% to 25% and taxing distributions to beneficiaries of discretionary trusts at 30%.
With the government not having stated plans to introduce any of the ALP’s policies, the tax effectiveness of the discretionary trust is safe – at least for the next few years – by allowing the splitting of passive income amongst beneficiaries to achieve the most beneficial tax outcome for the trust beneficiaries as a whole. Coupled with the benefits of asset protection and access to a CGT discount which looks like remaining at 50% for the foreseeable future, the discretionary trust remains a highly recommended structuring vehicle.