I move that this Bill be now read a second time.
Speaker, today the Albanese government is introducing the next tranche of legislation in the most ambitious tax reform package in a generation.
One that makes our tax system fairer, more sustainable, and funds income tax cuts for workers.
In June, the parliament passed the first tranche of legislation which cut taxes for workers again and again.
It limited negative gearing to new builds for future investments, encouraging new supply.
And it returned the capital gains tax regime to its original intent by restoring the taxation of real gains.
In August, we passed the second tranche of legislation – locking in a permanent instant asset write‑off for small business and loss carry back for companies up to $1 billion in turnover.
Through these first 2 tranches of legislation, we have delivered tax cuts for 13 million workers –
Support for more Australians to get into the housing market –
And are rolling out $3.8 billion in measures that lower taxes for businesses and start‑ups.
Speaker, this Bill is the next step.
The first 3 Schedules to the Bill implement the core components of the minimum tax on discretionary trusts announced in the Budget.
This is all about better aligning the tax treatment of income from assets and income from work.
It’s also about funding the income tax cuts for workers that we are delivering again and again.
We know there are legitimate reasons to use trusts, including succession planning and asset protection.
But the flexibility provided by discretionary trusts allows some people to plan their tax affairs in ways that aren’t available to most workers and families.
This is not a new issue or a new challenge.
Over half a century, governments of both political persuasions have received many reviews and reports recommending trusts tax reform.
In 1972, the then Commonwealth government commissioned a review of Australia’s tax system.
When that review was handed to the Whitlam government in 1975, it looked at the problem of income splitting through trusts in great detail and recommended reform.
Ten years later, the draft white paper prepared by the Hawke Keating government in 1985 raised this issue once again.
In 1998, Prime Minister John Howard committed to reforming the taxation of trusts in 2000 –
And the need for change was repeated the following year in the Review of Business Taxation report, known as the Ralph Review.
While Howard and Costello followed through on the CGT reforms in the Ralph Review that introduced lasting distortions in the housing market –
Their plans to reform the tax arrangements for trusts were not implemented.
The number of discretionary trusts has more than doubled over the past 20 years to over 800,000 – putting an increasingly unsustainable strain on the Budget.
But still, the vast majority of Australians do not have a trust.
More than 95 per cent of individual tax filers do not receive trust income and more than 90 per cent of small businesses will not be affected by these changes in any given year.
The majority of trust income also flows to the top earning 10 per cent of households.
And approximately 90 per cent of total private trust wealth is held by the wealthiest 10 per cent of households.
Treasury analysis shows that in 2022-23, families with discretionary trusts faced an average tax rate around 4 percentage points lower than families with similar incomes who do not use a trust.
And the widespread use of discretionary trusts as part of complex structures adds complexity to the tax system and compliance costs for taxpayers.
If we leave this issue for another day and another government, the risks to the integrity and the sustainability of the tax system will only grow.
The burden of that inaction will fall on regular people, on young Australians and on future generations.
That’s why we are taking action with this Bill.
Speaker, the minimum tax on discretionary trusts in this Bill will reduce a range of tax planning advantages available through discretionary trusts.
As set out in Schedule 1, from 1 July 2028, trustees will pay the 30 per cent minimum tax on the taxable income of discretionary trusts.
Beneficiaries other than corporate beneficiaries will receive non‑refundable offsets for the tax payable by the trustee.
A 30 per cent minimum tax aligns with the marginal tax rate for workers on incomes between $45,000 and $135,000.
A range of trust types will be excluded, including fixed trusts, charitable trusts, special disability trusts and superannuation funds, as is primary production income and certain income relating to vulnerable minors.
Deceased estates and discretionary testamentary trusts established for genuine testamentary purposes will also be excluded.
The legislation also ensures that all distributions from trusts to registered charities and deductible gift recipients are also exempt, as well as distributions to other income tax‑exempt entities like sporting clubs up to a reasonable cap.
There are also a range of ways that trusts may be able to reduce the impacts of these changes, such as making different decisions about the distribution of income or, for businesses operating through a trust, paying a wage to employed beneficiaries.
Importantly, the legislation also includes expanded options to limit or eliminate restructuring costs for small businesses and others using discretionary trusts.
These are sensible options that we have developed through close consultation with stakeholders.
Schedule 2 provides expanded rollover relief from 1 July 2027 to assist taxpayers that wish to restructure out of a discretionary trust into other arrangements, such as a company or a fixed trust.
And Schedule 3 provides an option for trusts to make an election for income tax purposes, and for as long as they choose to continue to make distributions to pre‑nominated beneficiaries in line with an up front nomination, they will be exempt from the minimum tax.
That election will not require a restructure or restrict a trust’s discretionary powers, and is not expected to result in state and territory stamp duties being payable.
Together, these reforms will improve the sustainability and integrity of the tax system and better align the tax treatment of income from work and income from assets, while providing appropriate transitional arrangements for existing structures.
Speaker, schedules 4 and 5 to the Bill contain the next tranche of legislation to implement the government’s reforms to negative gearing and CGT.
Schedule 4 clarifies the operation of the CGT reforms for a range of more complex and specific circumstances including for a range of trust structures.
And Schedule 5 legislates the definition of a new residential dwelling and exemptions from the limits on negative gearing for affordable and public housing and other purposes.
These reforms are about removing the distortions that have locked too many young Australians out of housing for too long.
They’re about making our economy more productive by ensuring investment decisions are made for economic reasons, not tax reasons.
And they are about targeting the tax support for investment in housing to new builds and affordable housing – so that these investments are supporting new supply.
Our government is tackling the housing challenge from every responsible angle: boosting supply, rebalancing the tax system, and helping first‑home buyers into the market.
The final Schedule in the Bill provides transitional relief for excess superannuation contributions in the first year of payday super.
Since 1 July this year, the government’s landmark reforms to ensure super is paid at the same time as wages and salary have been in effect.
Payday super will strengthen the super system and help deliver a more secure retirement for more Australian workers.
The amendments in this Bill ensure individuals are not adversely impacted where the timing of employer contributions in the first year affect their concessional contributions caps.
Labor built the superannuation system, and we are always making it stronger.
All our efforts, including payday super and the amendments in this Bill, are about safeguarding and strengthening the super system.
Speaker, combined, the government’s tax reforms mean the personal income tax burden share on workers is expected to be 2 percentage points lower over 10 years.
It will fall even further as these reforms run their course over the longer term.
The government thanks the many stakeholders and community members who have contributed to the development of these reforms, including in response to the July consultation paper and draft legislation released in recent months.
Reform on this scale is complex and the feedback we received has been an important part of getting the implementation details right.
It is helping us build a better tax system for workers –
For businesses –
And for future generations.
I commend the Bill to the House.
