iscover Trust tax minimum killing bucket companies, causing small businesses to suffer
TaxAccountants are not coming out as winners, but scapegoats at the hands of the government’s 30 per cent minimum tax on discretionary trusts, and they cannot believe it's happening, a firm founder says.
With corporate beneficiaries (bucket companies) to be assessed based on the trust income they are entitled to, and being barred from credit refunds, Grant Thornton national head of technical tax, private enterprise and author of Tax Wars, David Montani, said that these bucket companies will effectively be killed off, Accounting Times previously reported.
The change has implemented what many, including Box Advisory Services founder Davie Mach, called a “double tax”, and non-refundable tax credits for tax paid at a trustee level.
“This is actually worse than the CGT discount,” Mach told Accounting Times.
Extra tax guard rails for bucket companies are unnecessary with Division 7A in place, Mach said: “[The government is] trying to [create] another strategy, or whatever, because some people are just bad eggs.”
However, he said that most people are not bad eggs.
“Most people use bucket companies and trusts for investment purposes or running a business,” Mach said.
Further, a 30 per cent tax on discretionary trusts could lead to increased compliance and advisory costs that arise due to restructuring, Business NSW said. Mach said that many of his clients faced thousands in fees trying to restructure their bucket companies to avoid the double tax that the new change brings.
He said that this change is not a win for accountants: “[We are] the scapegoats, we're the ones that have to do [the] work, making these changes.”
With 58 per cent of accountants in Australia being over the age of 50, Mach said: “Why would they want to learn a new skill, new legislation, or these new things [instead of retiring]?”
He added that this minimum tax drives people away from bucket companies as an investment vehicle, which makes people less likely to invest, impacting the Australian economy.
Mach said that no one is talking about the double taxation because it is hidden in the federal budgets, and that "it doesn't make any sense".
“A business owner invests so much money, time, commitment, risk, personal assets, and takes up loans to invest in bucket companies, investing in their business. Now the ATO is saying that all should be equal. It doesn't make sense … you can't tax a business owner the same [as investors],” he said.
Mach said that there may have been a lack of consultation behind this minimum tax; however, there are better options.
“They should have just created a rule where you can't just leave money in a bucket company, you have to invest it; or they could [have created] a rule where you can't invest in property.”
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Carlos Tse
Carlos Tse is a graduate journalist writing for Accountants Daily, HR Leader, Lawyers Weekly.