Navigating Family Trust Distribution Tax

In this episode of TaxVibe, host John Storey, Tax Counsel at The Tax Institute and Jonathan Ortner, FTI, Tax Partner at Arnold Bloch Leibler, discuss trusts - specifically the Family Trust Distribution Tax in Australia, and its complexities.

John and Jonathan delve into the origins of FTDT and the traps that can arise from misunderstandings of the rules. Their conversation highlights the negative consequences of mistakes in trust distributions, including significant tax liabilities and the role of the Australian Taxation Office (ATO) in enforcing these rules. Additionally, in this episode Jonathan emphasises the need for fairness and clarity in tax policy.

For more information about The Tax Institute: https://www.taxinstitute.com.au/

Transcript

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John Storey: 0:18

Hello, and welcome to TaxVibe, a podcast of The Tax Institute, where we peel back the layers of the Australian tax world. I'm John Story, Tax Counsel at The Tax Institute, and host for today's episode. Today, I'm joined by Jonathan Ortner, tax partner at Arnold Block Liebler, and we're going to be discussing trusts and specifically the family trust distribution tax. Hi Jonathan, welcome to TaxVibe.

Jonathan Ortner: 0:43

Thanks, John. It's good to be here.

John Storey: 0:45

Great. Well, I thought we'd start with the basics. Can you explain what Family Trust distribution tax is, and why this integrity measure was first introduced? What the purpose of it was?

Jonathan Ortner: 0:59

Sure, so what it is, firstly, is a tax separate from an income tax. It's actually a tax administered under the Family Trust Distribution Tax Act, and why that's relevant, I'll come to later. But it is a tax that arises where there's been a distribution by an entity that has either made a family trust election or an interposed entity election with that distribution going to someone that is regarded as an out sider of the family group of the test person that is nominated in those elections. We'll get into the detail of what a test person is, what an election is, and how all that's done in practice, but that's broadly what the tax relates to, and it's a 47% tax on the amount that has gone out, the cash amount that has gone out. Broadly speaking, in terms of the purpose or background as to why these provisions were introduced in the 90s, the main reason at the time was that trusts, unlike companies, didn't have any rules that governed the or provided for restrictions around the carrying forward of tax losses, and so what that meant was that trusts were fundamentally treated differently to companies and provided an avenue for tax manipulation in the form of trafficking schemes, trafficking of losses, where by way of example, you might have a discretionary trust that has incurred losses due to investments that have gone bad, and the family that controlled that trust determined that there was an opportunity to sell essentially the control of the trust to some third party that could take advantage of that trust by injecting income that third party had earned from other sources, and so what was happening was that the relevant family group that had economically incurred the cost was not the family group that was benefiting from the use of the loss, it was some other party, and that was a manipulation deemed unacceptable at the time, and was giving rise to revenue risks, and for that reason rules were introduced to deal with the carrying forward of tax losses. As part of that, there was lobbying at the time to ensure that family trusts were not prevented from being able to carry forward losses because the tests were otherwise so restrictive that discretionary trust may not have been able to, so long as those trusts made what's called a family trust election. So, I might pause there. We can get into, depending on what you want to talk about, exactly what a family trust election means, and how you make one, but that's the broad thrust of why the provisions were introduced in the first place.

John Storey: 3:43

Yeah, well, it's interesting foreshadowing what we're going to be talking about, that the making of family trust election was intended to be a kind of concession, so effectively, if you make one of these elections, you don't have to satisfy all the complex trust loss rules that would otherwise be introduced, but as I understand it, in practice, fast forwarding a decade or more, it's actually become a bit of a trap for trusts that have made family trust elections. Can you explain some of those traps and the problems you're seeing in practice where people have made family trust elections, or think they have, or whatever, and it's now causing major problems for some family groups.

Jonathan Ortner: 4:29

Yeah, so before I do that, maybe I'll just quickly touch on, you know, what it means to make a family trust election. How do you actually do it? And then how does that trap arise as a result? So the making of an election under the current rules requires that an approved form be completed, and there are particulars within that approved form that need to be included, such as the name of the trustee, the year that you're specifying from which the election is to take effect, and most importantly. Who the test individual will bet and why I say most importantly is that it is the test individual that is relevant to determining the family group that is capable of receiving distributions out of the trust or out of another entity that's made what's called an interposed entity election, but if we just focus on a trust and the making of a family trust election. Let's just say, you know, I have a family trust, and I am nominated as the test individual. What that means is that my trust, or the trustee of my trust, can only distribute to family members related to me. So, for example, you know, my daughter, my son, my wife, you know, my parents, so natural persons that are regarded as family members, as defined under the provisions, there's some exclusions with that, even though you would commonly think of them as family members, and then to entities that are related to me, and there's very specific rules around what kind of entities can be brought into my group, and generally that's going to be, say, for example, in the case of a company, a company will be in my family group, where either I hold all of the shares giving me the rights to income and capital of that company, or the shares are held by my family members, natural person family members, or the shares are held by another trust, of which there is a family trust election in place with me as the test person, and that can be, you know, either all of the shares by each of those persons or collectively together across the three different groups that I just mentioned. Now you can only make one election, and typically speaking, it's irrevocable. There's certain rules that can apply, where within a limited timeframe you can vary or revoke that election, but broadly speaking, it should be considered to be irrevocable, and so where we're seeing issues arise in practice is that there is information asymmetry at times, because as groups expand and you have more and more trust, or you have succession, because you know the original test individual, such as myself, may have passed away, so it's now the next generation that's setting up structures. All of the information that might have been in my possession and the possession of my accountant may not now be in possession of my children or my children's accountant, and so when it goes to their accountant looking to advise them and making elections to nominate who the test individual of their structure should be. There may be a misunderstanding as to who the test individual of my structures were, or the fact that I have passed away means that I can no longer be nominated as the test individual in new elections, and suddenly you've got this disparate group from a test individual perspective, albeit it's still within the family, and distributions are suddenly going to outsiders because of the sort of convoluted way in which the rules are applied in practice.

John Storey: 7:51

So that the rationale of making the election is that distributions made within a family that wasn't the mischief that the legislation was getting at, if a trust controlled by me makes a lost and a trust controlled by my family has income to inject into it within the family, that's fine. And so these family trust elections were intended to allow that with the stick of, well, if you, if you distribute outside your group, you're going to be punished for that, but stick within your group. Then we're not going to apply the strict trust loss rules to losses. It seems like the mechanics, the practical implementation of the rules, are what's causing the problems, in that people find themselves inadvertently out of a group or accidentally in a group, or you can explain some scenarios. So, in practice it's not working as intended. Is that a fair summary of the problem we're facing?

Jonathan Ortner: 8:46

Yeah, I think the issue that has.. I think there's a multitude of issues, and I should say, as well, we touched on obviously the reason for why these provisions came into effect, which was to facilitate the carrying forward of tax losses, but since then the concept of a family trust has become a lot more pervasive through the tax act, and there are other reasons as to why you would want to make a family trust election, that includes flowing through franking credits, it includes being able to satisfy the small business restructure provisions in Division 328. It includes getting out of certain trust reporting requirements, so there's there's a number of reasons now why you would want to make one, but as to why some of these issues then come up in practice. At times, people make elections without actually thinking about why they need to, and so you think about the things that I just mentioned - losses, franking credits - none of that actually may be in existence. Yet, the accountant or the relevant advisor to the taxpayer suggested putting one in for the avoidance of doubt. Now, historically, that's not been a bad thing, but the problem is once you make that election, which is irrevocable, it hamstrings you in terms of what the trust can do visibly distributions moving forward, and so that's an example of things you know where there's a misunderstanding as to at what time should you put these elections in. The second issue going to your point is, I think there's just been a general acceptance that well if it goes to my son's trust or if it goes to my daughter's trust or if it goes to my wife's trust or a bucket company owned by my wife's trust. We're all family right, so all the entities are family and it's okay, but that's not right. Family members, being natural persons, are different from family group, which is what's relevant to work out whether entities are within the test individuals group, and just because the company that's a bucket company is controlled by, say my wife's trust doesn't automatically mean that company is in the family group, and you need to go through Schedule 2F and look at the definition of family group, and then track through to what it means for a company to come within the family group, and how that can happen to make that determination, as opposed to just saying, well, it should be in the family group, because it's controlled by my wife, and my wife's a family member. It doesn't work like that, and the rules are very technical, and this was acknowledged by Treasury, in I think 2011 in the discussion paper on the modernisation of trusts.

John Storey: 11:15

Yeah, and it seems that, as well as the rules being, they're not just the vibe of who is a family, they're much more strictly prescribed rules, but as well as that, there are a number of aspects that mean that if you fall foul of, you know, I thought my wife's company was in the group, that it worked out that it had a different test individual who wasn't a family or whatever. Not only is it sort of perhaps easy to make a mistake because the rules are very prescriptive and don't necessarily fit within your intuition of what a family group is, but falling fouls of the rules has devastating consequences. You've mentioned the tax rate that applies, 47% but there are other aspects, such as time limits and other things, that mean that making a mistake, it's not just that you can inadvertently make a mistake, making an honest, inadvertent mistake has devastating consequences. Can you explain why that happens, or could happen?

Jonathan Ortner: 12:15

Yeah, look, John, you know, we've seen in practice, as other advisors in the market have, liabilities in the hundreds of millions of dollars. Now, it's not just the hundreds of millions of dollars, the liabilities really that we're seeing, regardless of the size of the group, are disproportionate for what has actually occurred, being typically an administrative error and a misunderstanding as to how the rules apply in practice, as distinct from some egregious lost trafficking scheme, which the rules were introduced to deal with in the first place, and it's funny, if you go back to some of the commentary in the 90s, when they were trying to draft these provisions, the mere announcement of draft legislation was enough to dissuade people from entering into these lost trafficking schemes, you don't really ever see it in practice, and you haven't for a long time. So you know the mere announcement of the provisions was pretty much enough to put a stop on the sort of behavior that the government did not like at the time, and so much so when the legislation was introduced in forecasting the estimates for the provision, it was anticipated that the tax raising or revenue from the provisions in practice would be negligible, because it wasn't expected that people would breach the provisions. So, if we fast forward to now, and sort of what we see in practice with the collection of hundreds of millions of dollars, or you know, tax liabilities disproportionate to the offense. It is in some respects what people would argue inconsistent with what was being said at the time of the introduction of the legislation, and why that's relevant is because we do not believe, as The Tax Institute, and we've made submissions on this, and other advisors and bodies in the market are taking the same view, that it is appropriate for there to be no discretion available to the commissioner in the circumstances which he could exercise to disregard what are fundamentally honest mistakes and I sort of use Division 7A as a proxy for that and the discretion that exists in 109 RB and the policy rationale for why it exists, which is that the rules are fundamentally complex and are open to error, and that it would be appropriate in the context of Division 7A, where there are such honest mistakes, for the commissioner to allow, you know, the discretion to be exercised to disregard being dividends, that equivalent policy rationale exists here, it's compounded by the fact that there's no discretion, it's compounded by what you just alluded to before, which is that there's an unlimited period of amendment essentially. If we can call it that. The reason for that is, as I mentioned at the beginning of this podcast, family trust distribution tax is different to income tax. The income tax provisions and the rate. Raising of a debt for income tax is subject to an assessment process. The commissioner must issue a notice of assessment in order to crystallise a debt due and owing to the Commonwealth under the income tax provisions. Whereas with family trust distribution tax, it is a liability that arises and a debt that arises 21 days after a breach of the provision, and that is the distinction, as a result of which we have an unlimited amendment period, because it's not subject to the same amendment period rules as income tax assessments. It's just a debt that is available for collection by the commissioner, and the commissioner takes the view that he must go off and collect that debt as the revenue agency. So, when you think about what that means, the provisions we introduced over 25 years ago, the commissioner has the capacity to go back to the very beginning and assess taxpayers on mistakes that may have occurred and assess it to 47% tax, and then on top of that, there's a general interest charge, which compounds daily, and suddenly it doesn't take very much for an honest mistake to be something that causes a group to become insolvent.

John Storey: 16:04

Yeah, let's, let's just focus on the ATO for a second, because I have seen some recent comments that suggest that perhaps the ATO could be a little bit more lenient here. Recently, the government released draft legislation to introduce reforms to foreign capital gains tax rules. I won't get into the details of those rules, but one of the controversial aspects of them is, that they will be retrospective back to, I think, 20 years retrospective, and then similar thing, if I, some non-residents don't lodge tax returns if they don't think they have a tax liability, so there's no time limit that has run its course, normally four years in most situations. The ATO almost immediately came out and said yes, we wouldn't look to go back more than four years, and some people have found that inconsistent with what they're saying in respect to family trust distribution tax, where they say where our hands are tied and we're obligated to collect the full amount of tax. Do you have a comment on that? And I guess more broadly it seems like the ATO is actually going after family groups because of this issue, perhaps more aggressively than they previously were.

Jonathan Ortner: 17:22

So the other practice that I should mention, in addition to what you're talking about with Div 855, is the commissioner has a practice statement in relation to trustee assessments, where the commissioner, although trustees issue with assessments and therefore have an unlimited period of amendment, if, say, for example, they were liable under 99 or 100a, as a matter of practice, the commissioner will not go back more than four years, unless there's been fraud or evasion, or the return hasn't been lodged for the trust when it should have been, and some other types of egregious acts that might have occurred that justifies going back more than four years. And we put to the commissioner, you know, that well, you've got this administrative practice with trustee assessments. Why can you not adopt the same approach for family trust distribution tax? And the commission has been public on this. I'm comfortable talking about it, you know, it's being published in the AFR as an example. The family trust distribution tax, as I keep saying, is a debt that crystallises on a breach of the provisions 21 days after that breach. It does not require the commissioner to go off and undertake an investigative process to then determine that there's been a breach of the provision to then issue an assessment and crystallise the debt. Now, rightly or wrongly, the commissioner views those two processes as two very different things. If there's a debt due, and the commissioner is aware of that, he's got no choice but to collect on the debt. But if there's provisions that have the potential to apply, but they're not necessarily aware or not, the commissioner's position on that is that he cannot dedicate compliance resources to the issue, so that it doesn't come before him in order to make a decision to issue an assessment and create a debt that he'd otherwise be obliged to pick up. So that that for the commissioner is at least the distinction in terms of dDiv 855 I don't think the commissioner is saying that he would ignore, if put in front of him, the fact that you know what might not have been captured by real property is now captured by real property, and so, for example, the commissioner says if a taxpayer applied for a ruling that involved the amended law, the commissioner would consider the retrospective effects. Likewise, I believe if a case came before him that he wouldn't be able to turn a blind eye necessarily, and he would have to consider the matter based on whatever the law is. So, I think all he's saying at the moment that they're not going to go out and actively dedicate compliance resources to the issue, to identify a particular problem, which frankly is all we're asking the commissioner to do family trust distribution tax as well. However, the commissioner's position with that is that they can't unsee what they see if being picked up in a review, because a lot of the data may just be in front of them, given that it relates to distributions. If they see a distribution to an outsider within the amendment period, and they can see that that is showing up as a distribution that's occurred, you know, 10 years ago as well. They have to dedicate, in their view, the resources to determining whether there's been a breach of the provision for the purposes of collecting on the debt. Now they could moderate the way in which they look at these cases, as we have advocated for, by not raising questions in risk reviews and the like, to you know, put the information before them that they can't then unsee, but unfortunately that's not happening in practice from my perspective and from others, certainly in the risk reviews that I'm seeing in next 5000 reviews. In reviews on commercial deals engagements as a result of transactions that have completed. The commissioner is asking specific questions about family trust elections and is gathering information that once he does, he then is in a position that he can't unsee, you know what he has seen.

John Storey: 21:20

I guess one advantage of the ATO's approach is that if they were a little more accommodating or felt they could be more accommodating, some of the legislative problems that are causing the issues here, you know, we could sort of smooth the rough edges and just keep going, but in one sense, because the ATO, they've given a legal rationale for it, but certainly it could be interpreted as a rather hard stand on the issue. That's meant that this is really has to move to a legislative fix to resolve these problems. The ATO are at the end of the day just applying the law as it is written, and if there are unintended consequences that are devastating family groups. It is ultimately the way the legislation is currently drafted. Now, the tax institute has put in a submission to Treasury to do exactly that. Other bodies, accounting and tax bodies, have done the same, and there's recently a joint submission. Can you walk through some of the key proposals that would fix this problem at the legislative level?

Jonathan Ortner: 22:28

Yeah, and before I do that, I might just say, as well, you know, through my role as chair of the SME committee with The Tax Institute, and then my role as co-chair on the Private Group Stewardship Group, we have worked very closely with the tax office to try and find administrative solutions to these issues. One of the ways in which we've been able to achieve some level of success with the tax office is through an agreement with them to have an amnesty in relation to the general interest charge, so that where taxpayers come forward voluntarily, if they identify a family trust distribution tax issue, they can do so by 31 December 2026 with the comfort that the commissioner will remit GIC to the tune of 80%, which in a lot of the cases that is a significant part of the liability, so that is going some way to ameliorating the issue, but it's not enough, and it's not enough for a few reasons. One is because it's not perfect the way the system works, in terms of when family trust distribution tax arises, what it means is that the distribution to the beneficiary is treated as non accessible in the hope that there's no double tax, that doesn't always work where, for example, there's frank dividends passing, because the franking credits are denied, so there is an additional tax impost that's being picked up that wouldn't have otherwise in normal circumstances. The other reason why it's not really working in practice is because these rules are so complex and go back so far, and people don't have perfect information. That how do you make a voluntary disclosure when you don't know what you don't know until it's too late, because the ATO's picked it up, you just can't, so you know the group that these administrative solutions are capable of applying to is limited, and it's not perfect, and so for that reason, after sort of the two years of working with the tax office on this, all of the relevant bodies, Tax Institute included, determined that the only way forward was legislative. Now there's two ways that we can approach legislative reform. There's the band aid solution, which has happened haphazardly over the years with these provisions, as they have with other, you know, provisions in the taxing acts, including Division 6. Or there's the wholesale reform. Now, wholesale reform - what I mean by that is tearing up Schedule 2F because it's completely outdated and arguably unnecessary, and starting it again, so that we don't have this pervasive influence of family trusts for all these provisions that it was never intended to be picked up in, and address the integrity concerns in the relevant provisions specifically. So that might be that we've got specific rules applying for family trusts or discretionary trusts, as it relates to trust losses. For franking credits, we've got specific rules for that as well. For small business restructures, we've got specific rules for that too. Now I'm not going to get into what that legislation might look like. That's a very complex discussion, and you know there's a lot of policy rationale that needs to underpin that, that would shape what the legislation ultimately looks like, but that's one option, that's a long runway, I think, in the current environment. So, in the interim, what we're asking for, with the acknowledgement that wholesale reform ultimately is needed, are certain current amendments to what I describe as cauterising the blood loss. Now, what that looks like is the introduction of an amendment period that aligns with income tax assessments. Four years, there is no policy rationale in my and other people's view that justifies the unlimited amendment period that applies here. When you go back to the Rosa report from 2005 and what the basis is for an amendment period, it is to provide certainty and finality to taxpayers, and that does not exist here. And the fact that within these provisions, what is important is documentary evidence, a lot of the time that doesn't exist when people have passed away, or we're trying to go back 30 years, or family groups have, you know, changed, so it's very hard, and there's no certainty in the system. As a result, the other issue with that, as well, is that we don't have, I think, fairness and alignment between why there is an amendment period for most income tax provisions and family trust distribution tax, and then what's available to the commissioner now, as well, through the modernisation of the trust administration systems, is a lot more real-time data that discloses trust distributions to beneficiaries, and so the sort of issues that might have existed in the past that justified an unlimited amedment period information asymmetry, commissioner needs time to find the information similar to why evasion is justified for an unlimited period, that rationale doesn't exist anymore. So, really, the unlimited amendment period needs to go, and it needs to be four years, and that will fix the compounding GIC issue. We also think that GIC should be replaced with SIC, and the reason for that is fundamentally when SIC was introduced back in around 2005 it didn't take the place of GIC for family trust distribution tax, which was a provision introduced before then. GIC exists now really to stop taxpayers from being able to use the tax office as a bank when there is a known debt due, and they simply do not pay it. That justifies the higher compounding rate. SiC on the other hand, is an interest charge that's lower that reflects the fact that you haven't complied with the provision, but you didn't necessarily know there's got to be a an interest charge for that, but it shouldn't be as severe as GIC, because you didn't know about it, and you haven't used the tax office as a bank, essentially. Now, family trust distribution tax is akin to that. You know, for the most part, people don't know they've breached the provisions until they've been picked up in a review, and for that reason, SIC is a far more appropriate interest charge than GIC. So, what we're asking for, as well, is a change to the provisions to replace GIC with SIC, and that, together with a four-year period, would significantly reduce the disproportionate liability that taxpayers currently have as a result of innocent mistakes or administrative mistakes. Further to that, we've also requested some changes to the ability to revoke or vary elections, what we're seeing in practice is that with a lack of understanding historically about the provisions and how they apply in practice, and with a lack of guidance around some of these rules from the commissioner, and only some of those views coming out now that test persons were chosen when they shouldn't have been, or because of information that might have been available in the portal from the tax office, or that wasn't available when it should have been, people have relied on that as a means of making certain elections when those decisions were incorrect, because the information wasn't correct itself, and that mistake might only be found out later than five years, which is the current window for being able to revoke or vary, if you can even do it by satisfying the conditions in the first place. So, what we're asking for is an ability to go back and vary or revoke on an unlimited or some other longer period of time basis to allow taxpayers to rectify elections that have been made where mistakes have occurred in identifying or nominating a particular test individual that shouldn't have been, or information has become known to the taxpayer that wasn't previously, which informed them as to how they should make, you know, an election, and that changes now because of that new information. The other thing that we are also advocating for is a change in the family control test for companies a big issue that we're seeing in practice, which I alluded to earlier, is that you know a family trust, say with me as the test individual, is distributing to a bucket company, where that bucket company is held by another trust with, say, my wife as the test individual. Now, because of the way the family group definition works for companies, and family control tests for companies to be able to make an interposed entity election works. The company is neither in my family group nor is it capable of making an interposed entity election to come within my family group. That's despite unit trusts being able to satisfy the family control test in a far broader way, where the structure could be the same unit trust, 100% held by my wife's trust, but I'm a director of the trustee company, for example, it can satisfy the family control test that way, and the unit trust could make an interposed entity election to come within my group, so that distributions to the unit trust are okay. That expansive family control test doesn't exist for companies, and because of its limited nature, it means that people are inadvertently making interposed entity elections for companies when they thought they could, but they couldn't. Distributions are going to those companies, and it's causing family trust distribution tax. So, we don't think there is any basis for limiting the family control test for companies in the way that it has been given the test that applies for unit trust, and that should be expanded, and there's no mischief in our opinion that would be realised, you know, should that amendment occur.

John Storey: 31:31

I think anyone who investigates this area in any detail would eminently agree that all those changes are very sensible, very minor, not going to cause any mischief, and will potentially avoid some horrendous, you know, problems for trusts that at the end of the day often conducts businesses and or engaging in investments that are good for everyone. I guess, though, that politicians aren't just interested in the views of tax professionals, they're also interested in the views of their voters, and might just segue to broader issues of reform. The government are currently, as we speak, it's the week before the Budget, Federal Budget for 26-27 and there is proposals to introduce a minimum tax on trust distributions, and so you do see a segment in the media which tends to perhaps vilify the use of trusts as something that is, you know, tax avoidance or somehow people are doing the wrong thing. The irony is that tax settings, in many respects, has for decades encouraged people to set up their businesses or their investments in discretionary trusts. The 50% discount is the most obvious example where any advisor who doesn't want a negligence claim should be telling a client that, well, if you make a capital gain, if you put it in this structure, this discretionary trust, you'll get this discount if you sell, whereas another structure, like a company, you won't. And so there's been tax policy settings that have encouraged people to invest in or use discretionary trust, putting aside other things like estate planning and asset protection flexibility, and all that sort of thing, which are broader issues, not necessarily just tax. So, on the one hand, you know, we've had people, the government almost, I mean, they probably wouldn't say they were encouraging it, but was the effect of their policy, but I also see that there's going to be perhaps a little bit of trust bashing if this becomes a political issue unrelated to family trust distribution tax, just if they're increasing the tax settings on trust more, more broadly. So, I guess I have some concern whether even sensible minor changes in the area of trusts is going to get lost in the noise of this issue. The flip side is that it might get people to look at the tax arrangements for trusts more broadly, or business entity taxation more broadly, and perhaps as a suite of reforms could address some of these issues. Which one do you think is more likely? Are we likely to go down the path of continued frustration in this issue, or it could reform of trust be on the radar.

Jonathan Ortner: 34:27

Look, John, I mean, from my perspective, this is about fairness and what's right. You know, we're not asking for the provisions to be redesigned in a way that allows the concerns at the time of loss trafficking, and the like, to be reintroduced, you know. For example, asking for a limited amendment period doesn't mean that it's not open to parliament to draft legislation in a way that would mean there's still an unlimited period of amendment where certain types of behaviors are present. In the schemes identified by the Commissioner, be it evasive behavior, be it lost trafficking type behavior, the integrity of the regime can be protected while still being designed in a way that is fair and adheres to the fundamental principles of how tax policy should be shaped in Australia. At the moment, you can have a circumstance where an administrative error is made in 2005 and you've got a compounding interest charge, right? The accountant might have charged $500 for assisting in the making of the election, may not have charged at all, because it's just ticking a box, yet the taxpayer could have a multi million dollar liability completely disproportionate to the offense, that causes the group to be wound up, and these are hard-working Australians, as we know. We've got over a million trusts in the country, we've got small businesses operating through trusts, we've got medium businesses operating through trusts, we've got large businesses operating through trusts. The way in which the framework of our system operates, as you say, has facilitated the use of trust in this country, and that's the byproduct of that, more or less, every business operating in some form or another has a trust within a private group structure, and so when provisions are applied in this way, it has the capacity to cause insolvencies, which means not only are private groups affected, but their employees, their creditors, the accountants, the insurers. There's so many ripple effects here that mean that change is just necessary now. It's quite clear. Now, in terms of what I think will happen. That's the million dollar question, obviously. You know, the Labor Party has historically seen trusts as something that might be facilitative of tax avoidance. Now, the irony is, in any of the changes that are currently being proposed by government, be it the 30% minimum tax or the CGT discount, all of the reasons as to why you might have historically used a trust, there's still all the other reasons, which is what we've said all along, asset protection, estate planning, and so on, that will mean trusts continue to be used, you know, we wouldn't recommend, for example, someone with significant assets hold them in their personal name or hold them through a company in which they hold the shares personally, because they're exposed. So trusts are still going to be a feature of the system, regardless of tax, and for that reason we need to see these amendments put through, and if that means that the government needs to make other changes to the taxation of trusts to make it fair, or they'll do what they feel they need to do, but as part of that, if they're talking about making things fair, they need to make changes to these provisions as well.

John Storey: 37:44

Yeah, well said. I think our tax system ultimately is a self-assessment system. It relies heavily on trust, and the sorts of scenarios you've explained do undermine trust in the system. If it seems like it's not blaming the current government, this has been successive government's going back some time, but if it is seen as being capricious, unfair, you know, you could be wiped out because of a mistake by your accountant, or whatever, that undermines confidence in the entire system, and for that reason alone, I think that the government should take on board our submission seriously and rectify these issues. Jonathan. Thank you so much for your time. I've learned a lot more about family trust distribution tax than I knew going into this. I'm sure the audience has too. People can track this issue. Our submission is online, and any further developments we'll let people know. Thanks for being on TaxVibe.

Jonathan Ortner: 38:41

Pleasure, thank you, John. It's good to be here,

John Storey: 38:44

and thank you, everyone, for listening to this episode of TaxVibe. If you enjoyed today's discussion, subscribe, rate, and review TaxVibe wherever you listen to keep up with us. If you're interested in being at the center of the tax conversation, a membership with The Tax Institute could be just what do you need? Stay current and connected with tangible, real-world benefits. Learn more at taxinstitute.com.au Thanks again, and we'll see you back here soon.