Primary producers have been exempted from the federal government’s new discretionary trust tax reforms, after farm leaders warned ahead of the Budget that poorly targeted changes could threaten family farms and succession planning.
Treasurer Jim Chalmers used Tuesday night’s Budget to unveil what he described as “the most significant tax reform package in more than a quarter of a century”, including a new minimum 30 per cent tax rate on discretionary trusts from July 2028.
However, Budget papers confirmed primary production income would be excluded from the new tax.
Ahead of the Budget, National Farmers’ Federation President Hamish McIntyre had warned the government against changes that could adversely affect family farming businesses.
“Farmers are facing waves of uncertainty due to weakened supply chains,” Mr McIntyre said.
“We’re concerned that poorly targeted reforms in the Budget could create more fiscal challenges for farmers, instead of fewer.
“For years, the NFF has been vocal that changes to tax settings, ranging from Capital Gains Tax to trusts, must recognise that family farms rely on these structures to support farm succession from one generation to the next.
“Any move to change these structures must not adversely impact hard-working family farms and potentially put the future of multigenerational businesses at risk.”
The government said the new discretionary trust tax was aimed at “better aligning the tax rate on trust income with the tax rate paid by workers” and improving the “fairness and sustainability” of the tax system.
The Budget reforms will limit negative gearing for residential property to new builds from July next year, while the current 50 per cent capital gains tax discount will be replaced with inflation-adjusted indexation.
Dr Chalmers said the measures were designed to “rebalance a system which is more generous to assets than it is to labour”.
“This Budget includes the most significant tax reform package in more than a quarter of a century,” the Treasurer said in his Budget speech.
“This is about tax relief and tax reform to make our economy work for more Australians, businesses and future generations.
“We’re delivering a fairer tax system for workers, first home buyers and future generations.”
The Treasurer said the changes would help around 75,000 Australians achieve home ownership and better align the taxation of investment income with wages.
“We’ll also introduce a minimum 30 per cent tax rate on capital gains from July next year, and on discretionary trusts from July the year after,” he said.
“This is about better aligning the taxes paid on these types of income with the taxes paid on wages.
“These changes will level the playing field for workers and first home buyers, and support investment in productive assets, including new housing supply.”
Budget papers show the government believes discretionary trusts have increasingly been used to reduce tax through income splitting arrangements. Treasury analysis found families using discretionary trusts faced average tax rates around four percentage points lower than families with similar incomes who did not use a trust structure.
The reforms will not apply to fixed trusts, complying superannuation funds, charitable trusts or deceased estates, while primary production income and some testamentary trust income will also be excluded.
The government will also offer rollover relief for businesses restructuring out of discretionary trust arrangements into companies or fixed trusts for three years from July 2027.
Read the explainer on changes to tax on discretionary trusts.
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