The challenge to the notion comes from Brian Hor, special counsel, superannuation and estate planning with Townsends Business & Corporate Lawyers.

The role of family trusts in the tax planning efforts of wealthy Australians has been a source of controversy in recent years. Trusts have advantages in tax and other areas that are not open to sole traders or companies. Those advantages have been attacked. As far back as 2013, Dale Boccabella, associate professor of taxation law, Australian School of Business, UNSW Australia, wrote: “The use of family trusts has become so pervasive that even families with modest business or property assets (around $350,000) can gain a tax benefit from their use. This, perhaps along with an 'aspirational' element that accompanies trusts, may explain the general reluctance of policymakers to take a serious look at scaling back the tax advantages from family trusts.” (Source: theconversation.com, 12 March, 2013.)

Hor argues that while family trusts can be seen as weapons for “aggressive” tax planning, calls for access to the 50 per cent CGT discount by trusts to be phased out ignore the fact that family trusts are merely “look through” structures from a taxation perspective. It is the end recipient of a capital gain who may or may not be able to utilise the 50 per cent discount, depending on their own tax circumstances, Hor said in a note.

He argues that there are a number of tax rules curbing the tax-effective use of family trusts. For example, laws have addressed the splitting of income attributable to personal exertion rather than legitimate investment income (part 2-42 of the Income Tax Assessment Act 1997), or the distribution of income to minor children beneficiaries (division 6AA of part three of the Income Tax Assessment Act 1936, with penalty tax rates of up to 66 per cent), or the accumulation of unpaid present entitlements of corporate beneficiaries (division 7A of part three of the Income Tax Assessment Act 1936).

“Truly, whatever real tax 'loopholes' that previously might have existed in relation to the use of family trusts are well and truly gone. People who say that the income tax treatment of family trusts has trouble passing the 'smell test' need to get their noses checked,” he said.

“The modern reality is that in most circumstances family trusts are used as legitimate estate planning structures (particularly for farmers) and asset protection structures for allowing small business entrepreneurs to `have a go’ by lessening the prospect of losing all their personal assets if things don’t turn out as planned. Any incidental taxation benefits associated with such use could also be achieved with the use of other structures such as private companies or partnerships,” he said.

Hor said it makes no sense to use the case of very large trusts, such as the Hope Margaret Hancock Trust, which is believed to be worth about A$5 billion, as examples of family trusts allegedly foiling the tax system, since clearly such trusts are the “exception rather than the rule”.

He goes on to argue that calls to treat death as a "realisation event" for capital gains tax purposes to supposedly diminish the ability to pass major wealth across generations untaxed does not recognise that death results in a person’s estate beneficiary merely taking over the deceased’s tax position in relation to CGT rather than rendering any assets untaxable.