By Stuart Jones

The Government’s proposed reforms to the taxation of trusts require a strong SME focus, according to Pitcher Partners. Writing in Thomson Reuters Weekly Tax Bulletin Issue 12 (23 March 2012), Pitcher Partners Executive Directors Theo Sakell and Alexis Kokkinos outline some of the key reform issues and suggest that any changes to the current model of taxing trusts need to make the law simpler and more efficient for SMEs.

On 21 November 2011, the Government released a Consultation Paper on the operation of Div 6 of Pt III of the ITAA 1936. The paper also outlined a number of options for reform, ranging from minor changes to the current operation of Div 6 to the introduction of a new model for the taxation of trust income. The comment period on the paper has now closed.

Pitcher Partners says that there is a fundamental, overarching, high level principle that should be recognised in relation to trust taxation. Namely, that an effective trust taxation regime should allow trusts to be treated as a complete conduit, so that taxable amounts can be passed through to beneficiaries, whereby the trustee is no more than an administrator of the amounts. Pitcher Partners considers that this “conduit” principle should underpin all other principles.

While other parties have advocated complete reform of the trust measures through the “trustee assessment and deduction” (TAD)  model, Sakell and Kokkinos warn that such an approach would have significant ramifications for the SME market.