The analysis conservatively estimates that family trusts alone cost the Commonwealth budget $4.9 billion a year in foregone revenue.
The report uses Treasury data which shows that trusts are overwhelmingly used by the wealthiest Australians: the top 10 percent of income earners receive 63 percent of trust distributions, while the bottom 10 percent receive just 1%.
The Institute's report quotes a Queensland financial planning company advertising that "high-net-worth individuals save an average of $145,000 annually using family trusts". If that were true, and applied to just 10% of trusts, $14.5 billion a year in Commonwealth revenue is being lost. A NSW firm advertises family trusts as a way to "reduce tax, protect assets, and improve succession outcomes".
Key points:
- In 1990-91 there were around 326,000 trusts in Australia. By 2022-23 there were more than 1 million.
- The most prominent form of trusts used by households and businesses are family discretionary trusts, which many high income earners use to split income between beneficiaries. For example, someone earning $300,000 a year who divides that income between four trust beneficiaries would cost the Commonwealth nearly $50,000 a year. Instead of the sole earner paying $101,138 in personal income tax, a family trust allows the four to pay just $53,152 between them.
- As of 2022-23, total gross assets held in trusts were worth $2.9 trillion, or 17% of total household assets.
- The Australia Institute estimates that in 2022-23 $601 billion in revenue was run through trusts. This represents revenue equivalent to nearly a quarter (23%) of GDP.
"No wonder some of the richest Australians are complaining about the new minimum 30% tax rate on discretionary trusts," said Dr Richard Denniss, co-CEO of The Australia Institute.
"For too long, many of the wealthiest Australians have used trusts to avoid paying their fair share.
"To say these changes are long overdue is an understatement. In his tax review way back in 2010, then-Treasury Secretary Ken Henry raised the alarm about trusts being used as a way to evade tax.
"The basis of a progressive tax system is those who have more, pay more – because they can afford to.
"When you close loopholes which enable rich people to pay less tax than low income earners you make the system fairer.
"You also raise more revenue to provide the services which benefit all Australians, like a good health system, schools, roads and supports for those living with disabilities."
