The Government will move to stamp out the tax minimisation strategy that allows trust owners to stream $3,333 tax free to children aged 18 and under by abolishing the low-income tax offset for non-work income of minors.
The Government has become increasingly concerned that the streaming of income to minors is being used by high-income earners to dodge tax and claims the abolition of the LITO for non-work income earned by minors will save $740 million over the next four years.
“The Gillard Government will enhance the fairness of the taxation system and discourage the tax avoidance that currently occurs when high income earners allocate their income to children under 18 years of age,” Assistant Treasurer Bill Shorten said in a statement.
The Government says that while it has steadily increased the LITO over the last 10 years to provide tax relief to low-paid workers, the threshold increases have resulted in more tax dodging by high-income earners.
“Increases in the low income tax offset have, however, increased the amount of income that can be allocated to children tax free.”
“These increases have been accompanied by increased distributions of income to children, especially from discretionary trusts.”
The change, while will come into effect from July 1, is the only new change announced around the taxing of trusts in this year’s budget.
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
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