In a comment article published in today’s AFR, tax partner Shaun Cartoon writes that while the formula for wealth creation and preservation has relied heavily on property for decades, a steady stream of new taxes is raising questions around whether this previously reliable blueprint continues to be fit for purpose.
“Australian property is increasingly viewed as a sitting duck by ravenous state governments devising ever more ghoulish ways to tax it,” says Shaun. “From windfall gains tax on unrealised gains, re-zoning events and increases in land tax (from both higher rates and markedly higher valuations), to an array of surcharges and additional taxes for trusts, vacant property and commercial land, the reliable wealth creation formula of the past is being challenged like never before.”
Against this backdrop, Shaun observes, many wealthy families whose balance sheets are now viewed as massively overweight in Australian property, are looking to diversify, not only their asset classes but also the location of the family wealth to ensure access from multiple vantage points - providing offshore wealth advisers and private bankers with a once-in-a-generation opportunity to make a comeback.
“Once considered a tool for tax evasion, the ATO spent much of the last 15 years cleaning up offshore trusts and companies through various programs like Project Do It, which encouraged eligible taxpayers to voluntarily disclose unreported foreign income, capital gains or incorrectly claimed deductions. But as offshore assets become more popular again, so too will the temptation to establish offshore entities to hold them.”
The cautionary aspect of the story is that the establishment of offshore structures raises Australian income tax and integrity provisions that need to be carefully considered, not the least of which are the foreign trust and company income attribution rules.
“So, as the arc of tax structuring once again bends offshore, families and their advisers will need to ensure their new structures are fully compliant with Australia’s tax laws to avoid costly mistakes of the past.”
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