Labor says non-discretionary trusts such as special disability trusts, deceased estates and fixed trusts will not be touched and - in a move that will shut down a key line of attack from the Turnbull government - it will also not apply to farming or charitable trusts.
Announcing the crackdown, Opposition Leader Bill Shorten said it was about delivering a level playing field in tax, "so high-income earners can't opt out of paying income tax".
The opposition leader insisted Labor was not planning to prevent trusts being used legitimately to protect assets or for succession planning. The day will come at some point in time where people have another referendum, I suppose. The average amount in private trusts by the wealthiest 20% of households is more than $123,000, compared with $4,000 for the next quintile. But in some cases, trusts are used exclusively for tax minimisation.
He says the move will limit the legal but unfair use of trusts by Australia's wealthiest earners to split their income among family members instead of paying top tax rates on it.
"Seriously, what is the case for income splitting in discretionary trusts for these fortunate few?"
In the example, the couple has a discretionary trust which produces $54,000 from their investments.
The number of discretionary trusts has almost doubled since the late 1990s to more than 642,000.
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Robert Deutsch, senior tax counsel for the Tax Institute, said it was a "clever and surgical" approach to address "what people think is the main problem with discretionary trusts" because it avoided the complexity and unintended consequences of trying to tax them as companies. This is much greater than for those on higher incomes.
Speaking at the NSW Labor Conference on Sunday, Mr Shorten confirmed his government would tax family trust distributions to adults at 30 per cent in the speech which reaffirmed his party's stance on marriage equality, climate policy and aged care.
The tax change will affect 2 per cent of taxpayers and 318,000 trusts, about half the 642,000 discretionary trusts in Australia.
Asked why farmers were being exempted, Shadow Treasurer Chris Bowen said they had "issues when it comes to lumpy income and various issues relating to agriculture".
Assistant Minister to the Treasurer Michael Sukkar called on Labor to release full details, claiming it would harm small business owners in particular.
"Australians know that Bill Shorten can not be trusted".
Bill Shorten will slam the door shut on tax loopholes that let high income earners legally use trusts to slash their tax bills, in a move created to raise $17.2 billion over 10 years. "This also goes for his latest $17 billion tax-grab that will once again hit small business and their families", Sukkar said.
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