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 decide

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

The sale Plant and Equipment is taxable because they had previously written it off to nil under the immediate write off provisions, as is the stock. The only thing exempt from CGT because of this budget is the $50,000 Goodwill!

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!