CHAPTER 3 Business structures 103One also recalls the quick recant from shadow treasurer Joe Hockey two years ago after a ‘discussion’
with the leader of the National Party, Warren Truss, over the suggestion that family trusts should be
taxed like companies.
It should also be noted that as part of the rewrite of the current trust tax rules, the government has
confirmed its opposition to taxing trusts as companies.
Fourthly, the defenders of the current position have been very successful at muddying the waters by
bundling the tax and non-tax issues associated with discretionary trusts.
It is often accurately pointed out that discretionary trusts are a useful device for asset protection,
which can be viewed as code for not meeting one’s legitimate debts and liabilities. The suspended own-
ership feature of discretionary trusts is the basis for this.
Further, it is also accurately pointed out that discretionary trusts allow ‘asset owners’ to tie up assets
for considerable periods, even after their death, as a strategy to keep certain assets in the family or to
keep certain assets in a particular use.
The point here is that these non-tax features are regularly cited as the reason why people use dis-
cretionary trusts.
It is clear though that the constant reinforcement of these non-tax reasons has drawn focus away
from the tax issues and the associated tax benefits.
Defenders of the current tax position have been so successful that the non-tax reasons are at times
presented and received as the sole explanation for the existence of discretionary trusts.
The merits of the tax advantages can and should be analysed separately from the asset protection
and other non-tax issues.
There is no credible explanation why they should be forced to go hand-in-hand.
The income tax is littered with rules modifying the tax position of commercial transactions while at the
same time leaving the commercial transaction to stand unaffected.
I suspect the only thing that has some chance of moving policy makers to review the tax treatment of
discretionary trusts is if the media highlights examples of the tax advantage being gained by Australians
who could well afford to contribute more tax to the public revenue.
Even though there has been some indirect coverage of the tax benefits gained from discretionary
trusts by families including the Rineharts, the Obeids, and more recently the Tinklers, the tax issue has
been overshadowed by other issues.
Recent history shows that very often, re-examination of a public policy area only occurs when the
public is sufficiently outraged by an injustice. The required level of outrage has not yet been reached.
Source: Boccabella, D 2013, ‘Budget to target high earners’ family trust tax schemes’, The Drum, 25 March, http://www.abc.net.au.VALUE TO BUSINESS• A trust is a common form of business structure in Australia. A trust represents an obligation on a
person to hold property for the benefit of others.
• Family trusts are established for the benefit of families, and unit trusts are established for the benefit
of various parties.
• The main advantages of trusts are tax benefits and limited liability.
• The main disadvantage is the complexity of the law relating to trusts.3.11 Comparison of business reports
LEARNING OBJECTIVE 3.11 Compare and contrast financial statements for different business
structures.
This section will briefly outline the main components of the financial statements for the sole trader,
partnership and company business structures. A more in-depth discussion of these statements, including
the content and definition of each of the elements, will be provided in chapters 5 and 6.
Each form of business structure records and reports business transactions separately from the per-
sonal transactions of the owner(s). This is known as the accounting entity concept. If the owner uses the