Small-to-medium sized businesses in trusts may be forced to restructure

The Federal Government & the Australian Taxation Office (ATO) continued to alienate themselves from the business sector last week with the Tax Office releasing its final ruling on discretionary trusts distributing surplus income to corporate beneficiaries.

This means that some trust distributions may be recorded as a deemed dividend for Div 7A purposes. Accordingly, these deemed dividends may be taxed at 46.5 % instead of the corporate tax rate of 30%.

From a business perspective where businesses are owned by a family trust (one of the most common ownership structures for SME’s in Australia), profits that have previously been reinvested for capital expenditure, expansion and debt reduction may now be taxed at the 46.5% penalty tax rate.

The ATO has adopted this approach despite objections from accountants’ representative bodies. The implications for the SME sector already struggling in a “stimulus free trading period”, for job opportunities within the sector and for a recovering economy are patently obvious. Further, it casts doubt over strategic planning for the SME sector where, advice on structuring for a SME given in November, 2009 will be vastly different to that given post last week’s ATO announcement. Read more ❯

Important advice to help businesses prepare for potential changes to Australian tax laws

Sydney, October 15, 2009 – RSM Bird Cameron, a leading Australian accounting firm, has developed a check list for Australian businesses to prepare for potential changes in Australian taxation brought about by the Konza Proposition, budget changes to Division 7A legislation and the Henry Review.

The Australian Taxation Office (ATO), through the Konza Proposition, is seeking to treat unpaid present entitlements (UPEs) between discretionary trusts and corporate beneficiaries as loans, which would trigger the application of Division 7A deemed dividend provisions and effectively result in hundreds of millions of unexpected tax liabilities for private companies and their shareholders and associates.

There are a number of influences at work here and the result is impossible to predict. It is commonly known that the ATO is not a ‘fan’ of trusts and discretionary trusts in particular. Certainly, trusts generate some difficult issues for modern tax law.

Craig Cooper, director – taxation services, RSM Bird Cameron, said, “As expected, businesses are up in arms as to what these changes could mean and what they should be doing to prepare.” Read more ❯