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Chapter 21: Consistent treatment of entity income

A case for reform

Trusts, companies, co-operatives and limited partnerships are treated differently under the current tax system. This gives rise to complexity and increased compliance costs.

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A strategy for reform

To tax trusts, limited partnerships and co-operatives at the entity level like companies.

Key policy issues
How would the taxable income of the entities be calculated? How should unincorporated associations be treated? How should the taxation treatment of losses be aligned? Should entity concessions be applied uniformly? On what basis should entities be classified for taxation purposes? How should a tax liability be met if the entity has insufficient assets? Which trust beneficiary should bear the economic burden of the tax paid by the trustee?
Option
In line with the calculation of the taxable income of companies.
Option
Treatment as companies would continue.
Option
A more consistent treatment.

Closely/widely held distinction.

Transitional arrangements for prior year trust losses.

Option
In principle, all entities should receive equal access.

This does not, however, preclude concessions specific to particular entities.

Option 1
Use the ‘private’ and ‘public’ distinction.

Option 2
Use the ‘closely held’ and ‘widely held’ distinction.

Option 3
Draw on the Corporations Law.

Option
All parties to arrangement which resulted in inability to pay should be liable.
Option
Allow beneficiaries and trustees to determine for themselves which beneficiary should bear the economic burden of tax paid by trustee.