The biggest loophole: $3.1 trillion dollars in Australian trusts

A new report released today from The Australia Institute’s Senior Research Fellow, David Richardson shows that, according to ATO data, the equivalent of 21.6 per cent of Australia’s national income was run through a trust.

The latest ATO figures show there are 823,448 trusts with assets of $3.1 trillion, and total business income of $349.2 billion.

The flow of money out of these trusts is skewed heavily towards those on very high incomes.

Trust Fig 1

People with taxable incomes of more than $500,000 account for just 0.43 per cent of the population but receive 51 per cent of all trust distributions. The 96 per cent of Australians earning under $180,000, still a high income, receive just 13 per cent of trust income.

“Huge amounts of money are being washed through trusts in Australia, yet they remain the domain of a small number of people, most of whom are very wealthy,” Executive Director of The Australia Institute, Ben Oquist said.

“The Henry review into taxation recommended updating and rewriting the rules around trusts but that advice has, to date, been largely ignored.

“With Australia facing a revenue crisis, and trust being used to avoid and minimise tax, this is an area ripe for reform.”

Trust fund growth

Trusts appear to be growing in popularity as a tax-avoidance tactic for high-wealth individuals, with a 95% increase in the number of discretionary trusts between 1996-7 and 2014-15. 

Trust Fig 2

“The new transfer balance caps on superannuation, which came into effect 1 July 2017, are likely to encourage even more people to use trusts as an alternative tax minimisation and avoidance strategy.

“That is why now is a good time for the government to look at reigning in tax avoidance through trusts, which risks undermining their positive reforms to superannuation,” Oquist said.

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