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Trust loss legislation leaves small businesses scratching their heads

Publication date: 08 Oct 97 | Source: THE TAX INSTITUTE

The recent trust loss legislation, contained in Tax Laws Amendment (Trust Loss and Other Deductions) Bill 1997, serves as a salutary lesson in how not to exempt a category of taxpayers from specific (anti avoidance) provisions, according to Taxation Institute of Australia President, Mr Richard Gelski.

"The level of complexity contained in the measures designed to ensure that family trusts are not caught by these trust loss provisions will leave many small businesses operating through trusts (and their advisers) scratching their heads," said Mr Gelski.

"Firstly, they have to determine whether the trust is in fact a family trust - as defined. Then, they have to ensure the appropriate elections are made and determine whether family trust distribution tax needs to be paid by the trustee."

"Such decisions will add a substantial cost to the day to day administration of such entities."

"Based on these provisions, one can only wonder at how the Government will ensure that small business is not affected by any changes to the general taxation of trusts," he said.

The TIA has publicly stated in the past that a taxation system in its design, legislation and administration ought to be capable of being complied with by ordinary taxpayers without resort to professional assistance. The Institute is very concerned that any measures to protect small business will fall far short of achieving this overall objective.

Although John Howard has stated that his Government's initiative to crackdown on tax avoidance via trusts will spare small business, any concentrated attack on the structure and use of trusts in the Australian business sector will have a significant and negative effect on the small business operator.

"It is impossible to totally shield small business from the outcomes of a crackdown on trusts," said Mr Gelski.

"If trusts are attacked, small business will bear the fallout, there is just no avoiding it."

Close to sixty per cent of trusts in Australia are operated by small businesses who already shoulder the burden of the high cost of compliance with taxation legislation. If the Government attempts a crackdown on tax avoidance via trusts and changes the legislation, it will create a new range of legislative complexities which will potentially harm small business.

"Trust legislation is already complex. Changes to this legislation to achieve the dual goals of minimising tax avoidance via trusts and protecting small business from the effects of any change will result in an extremely complex document," Mr Gelski said.