Joe Hockey floats idea of taxing trusts as companies, Bill Shorten rules out GST move

Australia’s tax professionals have been caught by surprise by a suggestion from Shadow Treasurer Joe Hockey that the Coalition would look at taxing trusts as companies, nine years after a Board of Taxation review established by the Government ruled out the idea.

Hockey, speaking at an Institute of Chartered Accountants conference yesterday, admitted that the idea was contentious but said it is “worthy of consideration” if Australia wanted to move towards a “simpler and flatter” tax system.

As the Institute’s tax counsel Yasser El-Ansary was quick to point out, the proposal mirrored the Howard Government’s move in 1999 to try and tax trusts as companies.

Paul Drum, head of business and investment at CPA Australia, admitted his “hairs stood on end” when he heard that Hockey had revived an idea that the accounting profession fought hard to stop in 1999.

“I thought that was something that was dead, buried and cremated by the Board of Taxation five or six years ago.”

However, Drum says the issue is one that could be brought up at the Government’s tax forum in October and says there could be an argument for taxing some trusts – or at least trust-like structures – in the same way as companies.

One idea previously floated by CPA Australia is the S-Corp model used in the United States. Drum says this is a sort of hybrid trust-company structure, which eliminates the need for a trust to have a corporate beneficiary.

Drum says this model could actually have benefits for small business, which would be able to retain capital in an S-Corp structure rather than having to pass it through to a trust beneficiary as currently occurs.

While Hockey was floating an old idea, Assistant Treasurer Bill Shorten was busy ruling out any idea that the Government could raise the GST rate as a result of its tax forum.

Shorten told the conference that while the GST could be discussed at the forum, the idea of raising the GST rate was simply too politically sensitive.

“We face election, a pretty robust process,” Shorten told the audience.

Drum says the tax profession wants to see the GST issue considered from the point of view of Australia’s tax base over the next 50 years, not the next election cycle.

“We are not expecting that the tax forum will be the catalyst for major reform to the GST from say 2012. But it certainly it shouldn’t be off the agenda. It just doesn’t make economic and business sense.”