- Stay with your existing trust structure and suffer a profit reinvestment rate as low as 53 cents in the dollar; or
- Transfer to a new structure, incurring a crippling transfer duty cost of 4%-5% of the value of the business (QLD/WA) or land transferred (almost everywhere), plus substantial restructuring costs.
You have less than two years to decide.
The purported purpose of the government’s minimum 30% tax on discretionary trusts from 1 July 2028 is to reduce the ability to split business and investment income.
However, this policy is attacking the symptom rather than addressing the underlying cause (being our well-known over-reliance on income tax).
But it seems the misdirected attack is deliberate, going way beyond income-splitting. Trusts are being used as a Trojan horse to smash-tax small-to-medium business owners and private groups.
Here is a sample of the measures, which should leave any reasonable person gobsmacked:
– It’s really a minimum 32% tax for most, because Medicare levy is added. And yet, large corporate groups will continue to pay 30% tax.
– Small-to-medium businesses will now be able to reinvest profits after tax at a maximum of only 68 cents in the dollar and as low as 53 cents. Large corporate groups continue to reinvest profits after tax at 70 cents in the dollar.
– Private groups with a loss in one trust effectively will no longer be able to offset that against a profit in another trust in the same group. But large corporate groups can continue to offset a loss in one company against a profit in another company in the same group.
Seriously.
The above is not an exaggeration. It’s real.
The human consequences are disturbing, let alone the economic ones.
Treasury’s consultation paper on the policy was released on 8 July, and we’ve been given 17 business days to make submissions, needing to cover a wide range of significant and complex policy matters – in July, when many tax practitioners take holidays.
Oh, and we’re supposed to keep submissions to a maximum of five pages.
Nobody seriously believes that the government has any intention of listening to the concerns raised, because it seems that smash-taxing the small-to-medium business sector IS the intent.
What kind of government does this to the largest employer group in the country? (That’s not a rhetorical question – feel free to answer it.)
If a similar attack was going to be inflicted on workers, there’d be mass protests in the streets, and rightly so.
Of course, business owners can’t go out and do that, because they’re too busy running their businesses, creating jobs and so on.
We need to cut through the spin and expose the reality of this mounting horror surrounding us.
(Views are my own.)
David Montani
Author of Tax Wars; National Head of Technical Tax – Private Enterprise, Grant Thornton Australia