Labour-First Tax System (Untaxing Subsistence Labour) Act 2025

Draft Bill

Author: Nicholas D'Zilva

Status: Draft legislation

Target: Federal Parliament of Australia

Purpose: Ensure subsistence labour is untaxed while promoting fiscal integrity and fairness

Executive Summary

The Problem

Australia's current tax system creates fundamental unfairness by taxing people earning minimum wage—subsistence labour—while allowing significant tax minimisation through complex ownership structures and passive income arrangements.

Current Situation:

  • Workers on minimum wage pay income tax despite earning only enough for basic subsistence
  • Tax-free threshold has not kept pace with wage growth, causing bracket creep
  • Discretionary trusts and complex structures enable substantial tax minimisation
  • Multinational profit shifting reduces Australia's tax base by billions annually
  • Passive income receives preferential treatment compared to labour income

The Solution

A Labour-First Tax System that exempts subsistence labour from taxation while recovering revenue through enhanced fiscal integrity measures targeting ownership structures and passive income.

Key Mechanisms:

  • Raise tax-free threshold to full-time minimum wage (automatically indexed)
  • Mandatory beneficial ownership transparency for discretionary trusts
  • Strengthen multinational profit attribution based on economic substance
  • Remove preferential treatment for passive income above subsistence levels
  • Maintain fiscal neutrality through targeted integrity measures

What This Does NOT Do

  • ❌ Does NOT increase consumption taxes (GST)
  • ❌ Does NOT reduce services or increase government debt
  • ❌ Does NOT penalise genuine small businesses
  • ❌ Does NOT affect retirement income protections
  • ❌ Does NOT create new bureaucratic complexity for ordinary workers

This shifts the tax burden from labour to ownership, rent-seeking, and financial complexity.

Key Provisions

Part 1: Objects and Definitions

Core Objects:

  • Ensure individuals earning at or below full-time minimum wage are not subject to income tax
  • Increase transparency and fairness in taxation of trusts, corporations, and financial instruments
  • Protect subsistence labour while shifting tax burden to ownership and rent-seeking
  • Maintain fiscal neutrality and reduce welfare dependency

Key Definitions:

  • Subsistence labour: Work generating income at or below full-time minimum wage
  • Economic substance: Actual business activity rather than artificial tax arrangements
  • Passive income: Interest, dividends, capital gains, and rental income above subsistence levels

Part 2: Personal Income Tax Reform

Section 5: Raising the Tax-Free Threshold

  • Tax-free threshold set equal to full-time minimum wage under Fair Work Act 2009
  • Automatically indexed annually to the greater of wage growth or CPI
  • Covers all income including overtime, penalty rates, and casual loadings (up to threshold)

Section 6: Protection Against Bracket Creep

  • Income tax brackets above threshold automatically adjusted with indexation
  • Prevents erosion of take-home pay due to inflation

Part 3: Fiscal Integrity Measures

Section 7: Trust and Beneficial Ownership Transparency

  • Discretionary trusts must register beneficial owners with ATO
  • Public accessibility of beneficial ownership information
  • Clear attribution rules distinguish active business from passive income
  • Income-splitting solely for tax minimisation prohibited
  • Safe-harbour provisions protect genuine small/family businesses

Section 8: Multinational Profit Attribution

  • Profit attributed based on economic substance, not transfer pricing
  • Strengthened permanent establishment rules aligned with OECD BEPS standards
  • Mandatory reporting only for entities exceeding prescribed revenue thresholds

Section 9: Passive Income Alignment

  • Remove preferential tax treatment for passive income above subsistence thresholds
  • Preserve existing protections for genuine retirement income
  • Ensure effective tax rates on labour don't exceed rates on equivalent passive income

Part 4: Compliance and Enforcement

  • Section 10: Public beneficial ownership register maintained by ATO
  • Section 11: Clear statutory tests for economic substance with graduated penalties
  • Section 12: Whistleblower protections under Corporations Act

Part 5: Implementation and Transition

Section 13: Phased Implementation

Two-year implementation period allowing for:

  • Adjustment of welfare taper rates
  • Alignment of tax reporting systems
  • Stakeholder education and guidance

Section 14: Fiscal Neutrality

Estimated revenue offsets:

  • Trust and ownership leakage: ~$20–30B/year
  • Multinational profit shifting: ~$15–20B/year
  • Passive income alignment above subsistence: ~$5–10B/year

Section 15: Independent Review

Independent Fiscal Integrity Body reports annually to Parliament on:

  • Revenue neutrality
  • Compliance effectiveness
  • Labour participation and welfare impacts

Part 6: Miscellaneous

  • Section 16: Indexation and enforcement infrastructure permanent and non-discretionary
  • Section 17: ATO regulatory powers for implementation
  • Section 18: Necessary amendments to Income Tax Assessment Act 1997 and Corporations Act 2001

Why This Matters

For Workers and Families

Workers earning minimum wage keep their full income without taxation—recognising that subsistence labour should not be taxed.

Automatic indexation prevents bracket creep, protecting take-home pay over time.

Reduces welfare dependency by making work more financially rewarding.

For Economic Fairness

Shifts tax burden from those who can least afford it (subsistence workers) to those with greater capacity to pay (ownership, passive income, complex structures).

Closes loopholes that allow tax minimisation through discretionary trusts and income splitting.

Ensures multinational corporations pay fair tax on Australian economic activity.

For Fiscal Integrity

Maintains revenue neutrality through targeted integrity measures.

Enhanced transparency in beneficial ownership strengthens compliance.

Independent oversight ensures ongoing effectiveness and fairness.

No increase to GST, government debt, or reduction in services.

For Small Business

Safe-harbour provisions protect genuine small and family businesses from compliance penalties.

Clear tests and graduated penalties encourage voluntary compliance.

Targets artificial arrangements, not legitimate business structures.

Legislative Foundations

Constitutional Power

Commonwealth Parliament has clear authority to impose taxation under section 51(ii) of the Constitution.

This Bill exercises that power to promote fairness and fiscal integrity while maintaining revenue adequacy.

Alignment with Existing Law

Amends Income Tax Assessment Act 1997 (Cth) and Corporations Act 2001 (Cth).

Aligns with OECD BEPS (Base Erosion and Profit Shifting) standards already endorsed by Australia.

Builds on existing beneficial ownership and transparency frameworks.

Institutional Safeguards

Independent Fiscal Integrity Body ensures accountability.

Automatic indexation prevents political erosion of protections.

Whistleblower protections encourage compliance reporting.

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Read Full Draft Bill

For complete legislative text, implementation details, and fiscal analysis, see the full Labour-First Tax System draft bill.

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