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Wednesday, 11 November 1964

Senator HENTY (Tasmania) (Minister for Civil Aviation) .- The . Government cannot accept this proposed amendment because it makes the -provisions of the Act ineffective. It would make multiple trusts and all that goes with them again the order of the day. It would mean that the wealthy people could set up multiple trusts, spread their income over a number of beneficiaries who would each receive less than £204, thus escaping the taxes that they should pay. The application of a flat rate can be supported on the ground that it is no more appropriate to tax income being accumulated in a trust at individual rates than it would be to tax a company at those rates. Progressive rates apply to individuals on the basis that a taxpayer with a higher income can afford to bear a relatively higher tax burden.

The amount of income of a particular trust in relation to which there is no present entitlement is no real reflection of the income levels of the prospective beneficiaries or of their ability to pay. There may be either several beneficiaries or only one beneficiary presumptively interested in the income of one trust. A flat rate of .tax is necessary in rela-lion to trusts created for tax avoidance purposes in order to remove any incentive in the future for the creation of multiple trusts. As to the proposed rate of 10s. in the £1, this is the rate of tax applied to the undistributed profits of . private companies. At the present time trusts are used extensively to avoid the undistributed profits tax. Application of a 10s. rate to the income of trusts set up for tax avoidance and that derive dividends from private companies will mean that this avenue for tax avoidance will be closed. The' Ligertwood Committee proposed a 10s. rate in relation to trusts which could be varied for the benefit of the settlor's minor unmarried relatives. Too low a flat rate of tax under section 99a would provide an inducement for taxpayers with a rate of tax of up to 13s. 4d. in the £1 to create trusts for their own benefit and if they were not made presently entitled to the income, a saving in tax could be achieved.

I would add to that what I said this afternoon in relation to the matters raised by the honorable senator regarding the discretionary power of the Commissioner of Taxation. As I have said, if the trust is a tax avoidance trust and the Commissioner is satisfied that it is of that character, he would inform the trustee that it would be taxed at the rate of 10s. in the £1 unless the Commissioner could be persuaded that it was not a tax avoidance trust. If the trustee cannot so persaude the Commissioner, the trust will be taxed accordingly, but there is an independent Taxation Board of Review which can review the decision of the Commissioner. Where there is no tax avoidance, the Commissioner can rule that this rate of taxation will not be applied.

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