With new rules expected to limit income splitting through small corporations, one wonders whether other common strategies to limit tax exposure will be far behind and in particular the use of family trusts. The reason that one might be concerned is that is exactly what the coalition government of Australia seems poised to do.

According to a recent article in The Australian, the government is expected to target discretionary family trusts given their widespread use in Australia. This follows on from a report commissioned by the Australia Institute by David Richardson setting out that there are 823,448 trusts active in Australia with assets of AUS$3.1 trillion, and total business income of AUS$349.2 billion representing 21.6% of national income.

The problem that arises with attacking tax avoidance through the use of family trusts is that such trusts are not only used to minimize tax, and, that there are more than adequate and legitimate opportunities to place money in offshore trusts such that an overly aggressive attack on family trusts may well create negative unintended consequences or may simply drive money offshore. My own opinion is that governments should resist attacking trusts and focus their attention on tax advantages that arise in favour of larger corporations. My sense is that while there are some very large family trusts, the majority are not as large as one might think. In any case, it will be interesting to see how the situation in Australia plays out.

Have a very nice weekend,

David