WEBVTT - Congratulations! It’s a birth tax 0:00:03.840 --> 0:00:06.640 From The Australian, here's what's on the front. I'm Claire Harvey. 0:00:06.720 --> 0:00:13.790 It's Thursday, September 10, 2026. We've had the widow's tax 0:00:13.870 --> 0:00:17.189 and the super tax. Now there's a birth tax hidden 0:00:17.230 --> 0:00:20.290 in the federal government's shake-up to the way trusts work. 0:00:20.750 --> 0:00:23.470 The Australians are revealing today the changes could make it 0:00:23.510 --> 0:00:27.260 harder for tradies and small business owners to hand over 0:00:27.380 --> 0:00:30.920 to a new generation. The journo breaking all these scoops 0:00:31.060 --> 0:00:34.260 is Matt Cranston. And he's here in just a moment. 0:00:37.720 --> 0:00:40.360 We need to have a serious discussion about family trust. 0:00:40.380 --> 0:00:43.100 We may have seen the end of family trusts in Australia. 0:00:43.180 --> 0:00:47.170 It makes the tax system fairer and stronger for workers, businesses, 0:00:47.610 --> 0:00:49.890 first home buyers and future generations. 0:00:49.909 --> 0:00:53.070 They have changed their mind yet again. The devil is 0:00:53.210 --> 0:01:00.350 always in the detail. If you own a business or 0:01:00.470 --> 0:01:04.210 work for yourself, chances are your accountant has recommended you 0:01:04.370 --> 0:01:08.330 use a trust. It's a way of legally minimising tax. 0:01:08.770 --> 0:01:12.890 Income is distributed to family members who are taxed according 0:01:12.970 --> 0:01:16.690 to the amount they receive. This year's federal budget contained 0:01:16.720 --> 0:01:21.080 a huge change, a new minimum 30% tax on income 0:01:21.140 --> 0:01:24.620 from trusts. Safe to say it wasn't popular and it 0:01:24.680 --> 0:01:28.420 led some trust holders to look at changing their structures altogether. 0:01:29.090 --> 0:01:33.490 To fix that problem, the government's now drafted legislation that says, OK, 0:01:33.670 --> 0:01:36.889 you can be exempt from the 30% tax, but only 0:01:37.110 --> 0:01:41.190 if you fix the beneficiaries, who's inheriting what, up front. 0:01:41.730 --> 0:01:44.720 But families do have a way of expanding. 0:01:45.810 --> 0:01:46.699 So here's the problem. 0:01:48.020 --> 0:01:49.180 Here's Matt Cranston. 0:01:50.380 --> 0:01:53.720 If you have a newborn child after 2029, you didn't 0:01:53.760 --> 0:01:56.360 know it was coming, it's not in existence, this person's 0:01:56.400 --> 0:01:59.330 not in existence yet. And you try and add them in, 0:01:59.870 --> 0:02:02.600 then you have to revert back to paying the 30% 0:02:02.600 --> 0:02:09.100 minimum tax and actually 47% in the first year. Now, look, 0:02:09.560 --> 0:02:12.339 let me explain why they're trying to do this. They 0:02:12.380 --> 0:02:16.160 think that when you have a discretionary trust, you can 0:02:16.680 --> 0:02:21.830 change the amount that you distribute depending on the beneficiary's 0:02:22.330 --> 0:02:25.490 rate of tax that they're being taxed. And that helps 0:02:25.530 --> 0:02:29.049 you minimize your tax. Some people think this is a 0:02:29.070 --> 0:02:32.799 bit dodgy. So they don't want this to keep occurring 0:02:32.900 --> 0:02:36.739 because it's lost revenue for the government. But as I said, 0:02:36.760 --> 0:02:39.760 the problem is now once you lock in who the 0:02:39.800 --> 0:02:42.639 beneficiaries are and how much income they're going to receive, 0:02:42.900 --> 0:02:45.779 that means you can't change it. And if you go 0:02:45.820 --> 0:02:49.860 and add someone in afterwards, especially a newborn who you 0:02:49.900 --> 0:02:53.810 didn't know existed today, then that revokes that exemption and 0:02:53.840 --> 0:02:56.350 you're going to get charged the 30% minimum tax. 0:02:57.230 --> 0:03:00.560 I think there might be an assumption that people who 0:03:00.620 --> 0:03:03.580 have trusts are incredibly wealthy or they're using sort of 0:03:03.660 --> 0:03:08.919 exotic tax minimisation structures, but these are often quite ordinary families, 0:03:08.960 --> 0:03:12.620 aren't they? Farmers are people who use trusts a lot. Sure. 0:03:12.950 --> 0:03:14.590 What sort of people do you think would actually be 0:03:14.650 --> 0:03:15.270 affected by this? 0:03:16.310 --> 0:03:20.690 All this is really incredibly complicated, but people who have 0:03:20.990 --> 0:03:26.890 small businesses, people who are electrician, plumbers, fruit shop, many 0:03:26.950 --> 0:03:30.350 of them will have trusts. But yes, small business will 0:03:30.380 --> 0:03:34.619 be affected. A person who's not trying to be some rich, 0:03:34.700 --> 0:03:39.730 big tax dodger will be affected. But also, I imagine 0:03:39.810 --> 0:03:42.770 tax dodgers will be affected too. 0:03:43.860 --> 0:03:46.560 You broke a bunch of stories before the budget, which 0:03:46.600 --> 0:03:48.340 the government didn't want you to break. You broke a 0:03:48.360 --> 0:03:50.740 bunch of stories after the budget about things that were 0:03:50.820 --> 0:03:53.480 there in the papers that had not been clearly revealed 0:03:53.980 --> 0:03:56.480 on budget night. Was this one buried in all that 0:03:56.520 --> 0:03:58.920 detail on budget night or is this the result of 0:03:58.940 --> 0:04:00.960 tweaking that's happening kind of now? 0:04:02.190 --> 0:04:06.010 Well, you don't know what the rules are until you 0:04:06.070 --> 0:04:11.010 see the draft legislation. And the draft legislation is what 0:04:11.070 --> 0:04:14.260 it is. when they say draft, this is what they 0:04:14.280 --> 0:04:18.770 envisage to be what they want to introduce. So, I 0:04:18.810 --> 0:04:22.030 can only imagine that if there's no one prosecuting it 0:04:22.250 --> 0:04:27.190 or wanting certain changes to this draft legislation, then why 0:04:27.230 --> 0:04:31.520 would you change it? So, I think You need people 0:04:31.740 --> 0:04:34.060 like myself or all the tech, and I'm not saying 0:04:34.100 --> 0:04:38.250 it's myself. You have to be very modest here and say, well, 0:04:38.270 --> 0:04:41.030 it's not me. It's actually all the accountants, all the 0:04:41.070 --> 0:04:44.529 business groups, all the people that have paid lots of money, 0:04:44.550 --> 0:04:47.810 a lot more than I am, to discover these things 0:04:48.410 --> 0:04:50.940 and make sure they're advocating on behalf of their members. 0:04:51.720 --> 0:04:56.360 And without them spotting this stuff, you have to wonder 0:04:56.500 --> 0:04:59.940 whether or not the legislation would be changed. 0:05:05.150 --> 0:05:08.000 Coming up, what's the government actually trying to do here? 0:05:30.730 --> 0:05:33.070 We've talked a lot on the front before, Matt, about 0:05:33.500 --> 0:05:36.200 The philosophical points, I suppose, that the government was seeking 0:05:36.250 --> 0:05:38.320 to bring to bear when it brought down this budget, 0:05:38.460 --> 0:05:41.990 one of them was creating the Working Australians tax offset, which, 0:05:42.150 --> 0:05:45.110 as you said, gives them an architecture to basically reward 0:05:45.170 --> 0:05:47.050 people who have a job, who are earning their money 0:05:47.089 --> 0:05:51.469 through labour rather than through other kinds of money-making investments 0:05:51.510 --> 0:05:54.890 or whatever. What about this one? Is this, if this 0:05:54.950 --> 0:05:58.170 was the intention all along, that trusts are going to 0:05:58.190 --> 0:06:01.140 be limited in this particular way? What would be the 0:06:01.160 --> 0:06:05.020 kind of philosophical or ideological purpose there? 0:06:05.839 --> 0:06:09.909 It's a very good question because the money coming in 0:06:10.450 --> 0:06:13.789 to these trusts, I mean, people would disagree with me 0:06:13.890 --> 0:06:17.489 on this, but it's arguable that it's interchangeable between income 0:06:17.510 --> 0:06:22.290 from capital investment and income from labour. Right. some of 0:06:22.310 --> 0:06:25.070 these trusts might have an electrician business or so forth 0:06:25.610 --> 0:06:29.270 where a vast majority of it is labor and that 0:06:29.330 --> 0:06:33.770 money goes into the trust and then is distributed. So 0:06:34.610 --> 0:06:37.880 if you're putting a minimum tax on that, then you're 0:06:37.920 --> 0:06:41.979 not really trying to balance labor income with capital income, 0:06:42.080 --> 0:06:44.180 are you? But then the thing is a lot of 0:06:44.260 --> 0:06:49.440 trust income does come from assets and passive capital investments. 0:06:50.279 --> 0:06:56.089 So the, Central philosophy of the Labor government is that 0:06:56.470 --> 0:06:59.930 they want to even up the tax treatment of labor 0:06:59.970 --> 0:07:04.089 income with the tax treatment of capital income or income 0:07:04.150 --> 0:07:09.590 derived from investments and assets. And this change in tax 0:07:09.870 --> 0:07:15.780 on trusts is often... perceived or likened to really going 0:07:15.920 --> 0:07:20.760 after these wealthy trusts that have a vaster proportion of 0:07:20.840 --> 0:07:25.850 income coming from capital investments, from investments in assets, rather 0:07:25.910 --> 0:07:30.470 than just a business where the majority of the money 0:07:30.530 --> 0:07:33.650 coming in is from a service or a labor income. 0:07:34.300 --> 0:07:38.140 Yeah, so is there a sort of underlying philosophy here 0:07:38.200 --> 0:07:40.780 that people are doing sort of crazy exotic things with 0:07:40.840 --> 0:07:43.160 trust and adding more people to them as the years 0:07:43.220 --> 0:07:45.620 go on and what the government is seeking to do 0:07:45.640 --> 0:07:48.880 is go, okay, let's simplify everything here. Yes, you can 0:07:48.900 --> 0:07:50.580 have a trust and we'll give you a tax advantage 0:07:50.600 --> 0:07:52.480 for that, but you can't go fiddling with it too much. 0:07:53.320 --> 0:07:57.020 Yeah, so I'm not saying this is what happens with trust, 0:07:57.220 --> 0:08:00.560 but it's just one perception of what happens with trust 0:08:01.360 --> 0:08:05.200 for the benefit of illustrating your question. But let's just 0:08:05.300 --> 0:08:09.630 say that there's a trust and there's no really small 0:08:09.670 --> 0:08:13.170 business in it. But what it's got is just a 0:08:13.210 --> 0:08:16.270 lot of big passive assets. So it's, I don't know, 0:08:16.350 --> 0:08:20.260 it's fully invested in big stock market or a big 0:08:20.340 --> 0:08:23.020 startup company or that sort of thing. And the money's 0:08:23.040 --> 0:08:26.860 just pouring in from these massive gains. Maybe it was 0:08:26.900 --> 0:08:29.260 from a capital gain on, say, I don't know, an 0:08:29.300 --> 0:08:33.050 investment in Nvidia or something like this. It's like rich 0:08:33.110 --> 0:08:36.510 people with lots of assets and they're not working. It's 0:08:36.550 --> 0:08:40.830 just all money coming in from passive investments. Now, what 0:08:40.850 --> 0:08:44.150 you can do is instead of getting taxed at a 0:08:44.190 --> 0:08:48.340 really high rate because if you own that just directly 0:08:48.520 --> 0:08:51.939 for yourself, you'd get taxed really high because you're making 0:08:52.000 --> 0:08:54.000 so much money, you get taxed at the high rate. 0:08:54.480 --> 0:08:56.260 What you do is you go, well, let's put all 0:08:56.280 --> 0:08:59.719 that money in a trust and then you can distribute 0:08:59.740 --> 0:09:03.560 it out to different people who might have lower tax rates. 0:09:03.720 --> 0:09:07.320 So you might distribute it to a kid who doesn't 0:09:07.340 --> 0:09:10.280 even work. So they're not going to have a tax rate. Well, 0:09:10.300 --> 0:09:12.920 they'll get the low tax rate when you finally give 0:09:12.940 --> 0:09:15.859 them the money from the income. It's very complex, but 0:09:16.280 --> 0:09:19.719 really it's essentially sort of like a way to do 0:09:19.820 --> 0:09:23.500 income splitting or a way to minimize your tax because 0:09:24.100 --> 0:09:26.040 the tax you pay on the money you receive is 0:09:27.050 --> 0:09:30.319 from investments in a trust is based on your personal 0:09:30.340 --> 0:09:34.100 income tax rate, really. Because if you can distribute the 0:09:34.160 --> 0:09:35.719 money that's just going to go to your wife or 0:09:35.740 --> 0:09:38.309 your kid, then you're happy with that, right? Because instead 0:09:38.350 --> 0:09:40.570 of giving them money that you've already paid tax on, 0:09:41.110 --> 0:09:43.610 why don't you just give them money that's pre-tax and 0:09:43.630 --> 0:09:46.100 they can pay a lower amount on it than you 0:09:46.120 --> 0:09:46.350 have to? 0:09:50.030 --> 0:09:52.059 But the thing is that this is the system that 0:09:52.179 --> 0:09:53.960 we have in Australia. If you go to an accountant 0:09:53.980 --> 0:09:56.240 who's smart, they're going to suggest all of these things 0:09:56.280 --> 0:09:59.109 to do, as you've quoted Kerry Packer on this show before, saying, 0:09:59.150 --> 0:10:00.900 if you don't do these things, you want your head read. 0:10:00.940 --> 0:10:03.100 If you're paying more tax than the government's asking you 0:10:03.140 --> 0:10:03.440 to pay. 0:10:03.960 --> 0:10:05.960 And then you've got different trusts. You've got fixed trusts, 0:10:05.980 --> 0:10:09.540 you've got discretionary trusts, you've got testamentary trusts. The main 0:10:10.270 --> 0:10:13.890 big change is around this discretionary trust. That's where this 0:10:14.030 --> 0:10:19.729 exemption lies. And the exemption is based on making a 0:10:19.770 --> 0:10:24.079 discretionary trust more like a fixed trust, but without making 0:10:24.100 --> 0:10:27.780 a fixed trust. And some people like saying, well, if 0:10:27.800 --> 0:10:30.179 you're going to make the discretionary trust basically like a 0:10:30.220 --> 0:10:33.680 fixed trust, what's the point? Just do a fixed trust. 0:10:34.559 --> 0:10:38.120 So it is very complex. And a lot of the 0:10:38.140 --> 0:10:41.170 accountants are still umming and ahhing about the legislation, about 0:10:41.190 --> 0:10:44.380 the rules. These are the people that get paid a 0:10:44.420 --> 0:10:47.500 lot of money to advise their clients on what's happening. 0:10:47.840 --> 0:10:50.560 And even they are a bit confused by it. But 0:10:50.980 --> 0:10:54.099 I don't want to dissuade people from venturing out and 0:10:54.140 --> 0:10:56.990 trying to understand this thing. Because as I said, it's 0:10:57.040 --> 0:10:58.610 really important that people know about this. 0:10:59.230 --> 0:11:02.250 Well, we're very lucky to have you. Thank you very much, Matt. Thanks, Claire. 0:11:11.290 --> 0:11:14.780 Matthew Cranston is The Australian's economics correspondent. You can read 0:11:14.920 --> 0:11:17.490 all his scoops right now at theaustralian.com.au.