Family trusts shouldn’t pay full CGT

Calls for family trusts to pay full capital gains tax are unjustified as family trusts are only "look through" structures from a tax point, a superannuation lawyer said.

Townsends Business and Corporate Lawyers' estate planning and superannuation lawyer, Brian Hor, said scrapping access to the 50 per cent capital gains tax (CGT) discount by trusts overlooked the fact that any real tax loopholes that previously existed were now redundant.

"People who say that the income tax treatment of family trusts has trouble passing the ‘smell test' need to get their noses checked," Hor said.

"It is the end recipient of a capital gain who may or may not be able to utilise the 50 per cent discount, depending on their own tax circumstances," Hor said.

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The calls to scrap the CGT discount comes amid estimates that showed revenue leakage from trusts totalled $1 billion a year.

But Hor argued tax laws have tightened the tax effective use of family trusts, and any undistributed income of family trusts is taxed at the highest marginal rate.

Laws had tackled the splitting of income attributable to personal exertion rather than genuine investment income, the allotment of income to minor children beneficiaries (with penalty tax rates of up to 66 per cent), and the build-up of unpaid present entitlements of corporate beneficiaries.

Family trusts were mostly used as estate planning structures as asset protection structures, which sheltered small businesses and their personal assets if things went awry.

Hor said any related tax benefits could also be achieved through other structures such as private companies or partnerships.