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Wednesday, 11 November 1964

Senator WRIGHT (Tasmania) .- This clause deals with the trust estates to which we referred this afternoon. I wish to refer to that part of the clause that seeks to introduce new section 99a. It is concerned with trusts in which the income earned by the trust investment is such that no person is presently entitled to that income during that year. I have had this provision described to me by a man of credit, knowledgeable in these matters; as a really illogical proposition, an extortionate proposal that has vicious consequences for trusts which for the most part are of small importance. If this clause goes through unaltered, in the case of a trust in which no person is presently entitled to a particular year's income, the income of that trust will be assessed and liable to tax at the rate of 10s. in the £1 for the year. It may be a trust that is yielding income of only £400. Nevertheless, simply because it is directed to be accumulated for three years - it may be for an invalid daughter, an aged parent, or for any other worthy cause, such as a religious body or a scientific or charitable institution - unless, in the case of the last mentioned institutions, they have an indefeasible vested interest - the income is confiscated to the extent of 10s. in the £1. Sub-section (5.) of the proposed new section 99a, refers to paragraph (f) of section 23, which relates to trade unions. I mention that in the hope that it will alert the Labour Opposition to concern with this clause at least. In the creation of a trust, there may be a contingency upon which a trade union becomes entitled to the interest. Suppose it is a trust in the first place to be accumulated for the benefit of a sick daughter. Her health is such that she will probably die. If she survives until she is 21 she receives the income, but if she does not, it goes to the settlor's trade union.

I am amazed that any parliament in the country can accept this provision without horror and without categorising it as my correspondent categorised it as really illogical, an extortionate proposal and something that is vicious in its incidence. Merely because the income of that trust is not payable to any individual person for the particular year, it is taxed to the extent of 10s. in the £1. This applies to trusts that have been created at any time prior to October 1964; it applies to trusts, the purposes of which were to avoid income tax, and it applies to a perfectly bona fide family provision. It does not apply to trusts that arc created by will or trusts arising out of intestacy, lt imposes that punitive rate of tax upon a perfectly legitimate trust. The only protection that it gives to the beneficiary who, I think every honorable senator would concede, is entitled to some protection, is contained in proposed section 99a(2.) which states-

Tins section docs not apply in relation to a trust estate ... in relation to a year of income if-

Here I begin my beatitudes - the Commissioner is of the opinion that it would be unreasonable that this section should apply

Although I regard the Commissioner of Taxation with all the divinity to which I think he is entitled, I am not prepared to acquiesce in a situation that beneficiaries or trustees of bona fide trusts whose income may be accumulated for two years or ten years shall be treated in this way. The law sets a definite limit beyond which the accumulation becomes completely invalid. I have not checked it, but by and large honorable senators can take it that our law sets the limit at 21 years. Beyond that it is void. Yet we have the Taxation Branch coming in to confiscate 10s. in" every £1 of income, and trade unions, if they are conditional beneficiaries in these trusts, will be met with this scythe. The only protection they have lies in the hope that the Commissioner will be of the opinion that it is unreasonable to apply this provision.

Wc fought this situation three centuries ago when a king wanted to dispense with the laws. Most people would find it in their heart to give a king superior recognition to that accorded a Commissioner of Taxation. I find it completely unworthy and obnoxious that any parliament would think that that was appropriate protection to trust estates whose purposes are as worthy as I have described.

Just ponder on the enormity of this proposal, the viciousness of it and its effect on a trust which is not in its terms irrevocable. I sec no escape unless the Commissioner can be induced to take the view that to impose the provisions of this section on the trust would be unreasonable. I see no escape from the situation that throughout the remaining period of operation of that trust, the annual income, however small it may be, will be taxed at the rate of 10s. in the £1.

With all the respect that is due to the Commissioner of Taxation, whoever he may be from time to time - whether he be Cain or Abel - and with all the respect that is due to his advisers and to the traditions that may prevail in his office I claim that he should not have authority to say whether it is reasonable, for the protection of my family, to create a particular trust. When I state this in terms of my family let me hasten to say that I have no such trust. I am not concerned in this either in a personal sense or professionally. I speak here to prevent these small trust estates being victimised by a vicious piece of legislation that quite properly could have been framed to cure any defects. The only defect that has really been disclosed is the case of a man who has created a multiplicity of trusts. Instead of confining himself to one trust instrument he has been advised that if he sets up a trust which will return incomes of less than £204 a year, he can escape the payment of taxes. If he has a total income of £3,000 and forms .15 trusts and so keeps the income of each trust under £204 a year he has the loophole. In such a case I would have thought it a very simple proposition to provide that where a settlor within the last seven years, or ten years if you like, has created a number of trusts with the same or substantially the same beneficiaries, the trusts should be taxed upon their aggregate income.

I think the proposal is a reflection on any parliament. Honorable senators will notice that in proposed section 99a (I.) provision is made that it will not apply to a will or to an intestacy. To learn whether the Senate will prescribe a proper criterion, I move -

After paragraph (b) of proposed Section 99a. (1.) add the following new paragraph: - " or (c) a transaction bona fide made without any intent to evade income tax."

If the settlement is made bona fide without any intent to evade income tax it will not be subject to the proposed arbitrary imposition.-

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