Coalition to plug wealthy tax loophole

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By Leith van Onselen

Last month it was revealed that a draft tax ruling issued by the Australian Taxation Office (ATO) in March 2017 could allow “passive” family investment companies to claim tax refunds and deductions, opening the door for wealthy families to claim back hundreds of millions of dollars. This draft ruling overturned the generally-accepted view that such family investment companies – which do not actively carry on a business – would not be eligible for the reduction in the company tax rate for small businesses from 30% to 27.5% over recent years.

Financial Services Minister, Kelly O’Dwyer, then advised the ATO that the Federal Government’s tax cuts for small businesses were not meant to apply to passive family investment companies.

Today, The AFR reports that the Turnbull Government plans to pass legislation to ensure that only actively trading companies will be eligible for the reduced company tax rate of 27.5%:

Only active trading businesses will be eligible for the lower rate, not companies holding passive investments, such as those linked to family trusts.

The Australian Financial Review has been told a legislative amendment will “remove any uncertainty”…

The confusion arose over the fact the Australian Taxation Office’s interpretation of the law appeared to classify companies holding passive investments, including so-called bucket companies linked to family trusts, as eligible for the lower rate of 27.5 per cent…

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About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.