David Richardson
Senior Research Fellow

Today’s media referred to our 2017 study that showed people with taxable incomes of more than half a million dollars are just 0.43% of the population but receive 51% of trust distributions.

The annual tax expenditure statement (TES) provides a list of all the tax credits or loopholes in the tax arrangements. These can be considered warps in the tax system that benefit particular types of people or business activities. Interestingly the TES takes the trust arrangements as just part of the furniture and does not treat them as a warp in the tax system, even though they are deliberately used as a device to avoid paying tax.

But the TES does give us updated figures on who uses trusts.  We know that the 24 per cent of individuals who reported trust income were in the top 10% of incomes and accounted for 63 per cent of all trust income. Reflecting the use of trusts by working age people, those 35 to 59 years old accounted for 58% of all trust income. The stereotypical trust user is a professional or tradie whose income goes into a trust and so part of that income is attributed to other trust members. By splitting income in that way  the taxpayer avoids paying as much tax as would an individual tax payer. 

Tax office data are also interesting. The tax statistics from the tax office show that the net business income of all trusts in 2022-23 was $483.5 billion and there were 6.3% of trusts with business income of half a million dollars or more and which received 48% of all trust income worth $236.6 billion. These are big chunks of national income, 18% of GDP for all trusts and 9% for the big ones.

Apart from tax avoidance we do not think there is much of reason to go to the expense of running your business through trusts. So we have to suspect that the 18% of Australia’s national income going through trusts is designed to avoid tax and around half of that means avoiding some tax on half-a-million-dollar incomes or more.

Australian income and especially wealth are very badly distributed towards the rich. Trusts explain a lot of the maldistribution of the after-tax income in Australia.