The Council of Small Business Organisations Australia (COSBOA) says the Government’s proposed 30 per cent minimum tax on discretionary trusts remains bad policy that will hurt small business. A 47 per cent tax treatment for businesses that elect into the alternative arrangement but later need to leave it because their circumstances change is punitive and unnecessary.
Under the exposure draft, a discretionary trust that makes this election would be taxed at the highest marginal rate in the income year it leaves that pathway. Family members that receive a distribution would pay the Medicare levy on top of this.
COSBOA CEO Skye Cappuccio said:
“The Government has provided a pathway that may be a least-worst option for some small businesses. But small family businesses should not be punished when their circumstances change.
“Family businesses evolve. A son or daughter might come home and start working in the business. The next generation might take on a bigger role. A family may need to change who receives distributions. These are normal decisions for a family business.
“If making one of those changes means losing access to the elected arrangement, why should that business then be taxed at the highest marginal rate for that year?
“There is a straightforward alternative. Let the business move to the Government’s proposed 30 per cent minimum tax. There is no need to impose a higher rate for that year.
“The Government’s underlying 30 per cent minimum tax remains bad policy. But if it intends to proceed, it should not make a bad policy worse by punishing small family businesses simply because their circumstances change.”
