Small business owners have told the Council of Small Business Organisations Australia (COSBOA) they fear proposed trust tax changes could leave them paying thousands of dollars more in tax each year, placing additional pressure on businesses already facing rising costs and challenging trading conditions.
Through its Fair Go for Small Business campaign and engagement with members, COSBOA says it is hearing high concern from small business owners operating through trust structures about the potential impact of the proposed changes.
COSBOA CEO, Skye Cappuccio said the public debate had largely overlooked the genuine small businesses likely to be impacted.
“There has been very little attention on the 350,000 to 400,000 small businesses operating through trust structures, many of whom now expect a significant hike in their tax bill and a direct impact on their business and their livelihood,” Ms Cappuccio said.
“These are small businesses using trusts for legitimate commercial reasons. Most have annual turnover below $2 million and include trades, retailers, hospitality venues, professional services firms and family-run enterprises in communities right across Australia.
“The proposed changes risk putting additional pressure on small businesses at a time when many are already facing rising costs, workforce challenges and difficult trading conditions.”
One small business owner who contacted COSBOA said the proposed changes could significantly increase their annual tax bill.
The husband-and-wife team both work full time in the business. They don’t pay themselves a wage through the business but rely on trust distributions from a business, of around $200,000 between them each year. They estimate they currently pay around $45,000 in tax each year.
Having spent decades building the business, taking risks and reinvesting profits back into its growth, they say they do not see themselves as wealthy investors but as small business owners focused on supporting their family and the people they employ.
They say trusts have been portrayed in a way that does not reflect their experience. For them, a family trust is simply the structure through which their business operates and has provided a practical framework for managing and growing the organisation over many years.
Based on estimated calculations, the proposed changes could increase their annual tax bill by around $15,000, taking their total tax liability to approximately $60,000 a year. Over five years, that would amount to around $75,000 in additional tax – money they say could otherwise be invested in equipment, productivity improvements and future growth.
Ms Cappuccio said many small businesses were alarmed the changes could increase their tax burden simply because of the business structure they use.
“Many small business owners operate their business through a family trust because it is the structure that makes the most sense for their business. These are not businesses using aggressive tax avoidance strategies. Trusts provide a legitimate structure to support succession planning, asset protection and business continuity,” Ms Cappuccio said.
“Small business owners spend years prioritising the needs of their business ahead of their own financial circumstances. Rather than paying themselves more, they often leave money in the business to purchase equipment, manage cash flow, employ staff and prepare for future challenges and opportunities.
“They make those decisions because they believe in building something that supports their family, creates jobs and contributes to their local community.
“We are hearing from small, family businesses that expect to face a higher tax bill and a higher tax rate than if they had set up their business through a different structure. This adds pressure when many are already dealing with higher costs of doing business and lower profit margins.
“If Australia wants stronger productivity, stronger business investment and more jobs, we need policy settings that encourage people to take risks, build businesses and reinvest in growth.”
As part of its Fair Go for Small Business campaign, COSBOA is collecting stories from business owners concerned about the impact of proposed tax changes on investment, succession planning, retirement planning and long-term business confidence.
COSBOA acknowledges the Government has indicated further consultation on trust taxation will occur in the coming weeks and looks forward to engaging constructively in that process.
However, COSBOA says it is critical that the concerns of genuine small businesses operating through trusts are properly understood and considered as part of any consultation and before legislation is introduced.
COSBOA is urging the Government to reconsider the proposed trust tax measures and work with the small business sector to ensure any reforms do not penalise genuine small businesses using trust structures for legitimate commercial reasons.
