A quick take on the budgets proposed trust taxing regime

Here is a federal budget viewpoint that perhaps remains unconsidered 🤔

A real life example of a small business operating through a discretionary family trust, earning a net profit of $60,000 per annum:

Crapper and Crapper – a plumbing business.  Mr Crapper does the plumbing work, Mrs Crapper does all the bookkeeping, administration, including purchasing materials and hiring contractors, running errands etc.  The are both self-funded of retirement age but still work, not because they want to but have to, to support their modest lifestyle.

Current tax payable for each person:  $2488 leaving $27,512 to live on or $529 per week.

Future tax payable under new trust taxation proposed:  $9,000 leaving $21,000 to live on or $404 per week.

Mr and Mrs Crapper have decided to restructure into a company.  The proposed budget currently proposes CGT relief on such a restructuring exercise.  The plumbing business has been valued at:

Plant and Equipment $150,000, Stock $50,000, Goodwill $50,000, Total = $250,000

Stamp Duty payable on restructure = $6935

Negative Gearing:

Q. What happens when the rental schedule loss is not tax deductible against other sources of income?

A. The cost base of the asset increases.

Result – less CGT revenue for the ATO when the asset is sold, or capital losses to be written off against future gains.

Result = no change in Government Revenue in the long term!