Can Small Business “Trust” Labor?

Peter Strong, the CEO of the Council of Small Business of Australia, talks about whether Labor is targeting Small Business through trust crackdowns,reversing the penalty rate decision, and company tax cuts

Introduction: Can Small Business Trust Labour?

Ross Greenwood: Coming up I‘ll speak with the Head of the Council of Small Businesses in Australia, the big body that represents small business, the Chief Executive, Peter Strong. The reason for that is in regards to labor and its policy, that it wants to clamp down on trusts in this country. In particular what I call discretionary trust. Just to explain this to you there are different types of trusts, there are say for example testamentary trusts that people put in place to try and basically make certain that if a person dies, that the assets are protected until they decide what to do with those assets after the matter of that person having died.

In other words the assets don’t need to be sold immediately, that’s one type of trust. Another type of trust is say for example the unit trust, where a group of investors will get together and like shares they take their slice of that particular trust. Another trust and this is the one that Labor’s trying to clamp down on, is the so called discretionary trust. Now, discretionary trust is largely used so that you can distribute income on a discretionary basis.

In other words. so long as people are beneficiaries it can go to you, it can go to me, it can go to somebody else, but next year it might go to just you and me. Depending on the circumstances of those individuals, the money is basically shuffled around to make best use of our tax system. Remember of course that the first $18,000 or so that you earn is completely innately tax free, and so people try and use the tax scales to reduce their overall taxation. Now, what the government is — Or rather what the Labor Party is really I think reasonably sensible, to clamp down on people who misuse trusts to be able to try and cut their taxes where ordinary people do not get the same opportunity.

However, the problem here is that small business in particular believes it’s being singled out in regards to this. That it is really, carrying the burden. There’s some suggestion that farmers will be exempted as a result of the Labor policy, but small business will not, but farmers are small businesses and so is the person who makes widgets there is no doubt and they’re using the trust largely for the same purposes. That is to protect themselves and their assets in the event that say for example a son or a daughter marries, that marriage breaks down, and an in-law aggrieved tries to come after the assets of that particular trust.

That’s a pretty typical reason as to why people would have such a thing. Anyway, a little earlier I did speak with Chris Bowen who is the Shadow Treasurer, wanting to bring in this policy. Here’s just a little of what he told me.

Interview: Chris Down, Shadow Treasurer

Chris Bowen: What if you got a family member who’s working in the business, they’re getting a salary, a wage, no charge, no difference. To get to the small business point anybody who is running a business, taking a wage, contributing to business absolutely no difference. Where you’ve got income that’s being split between family members, and often Ross as you’d understand it’s being split almost exactly the tax free threshold so 18,000 here, 18,000 there. No taxes is paid on them. We would apply a 30% minimum tax rate.

Ross Greenwood: There you go, minimum 30% tax rate and that is the change. Question is, whether it’s fair or whether it’s not fair. Now, I put to him the concerns about the small business lobby, and this is what he told me.

Chris Down: I think that’s what Peter Strong will tell you, I don’t want to speak for him, but he says this policy itself might affect many small businesses but they’re concerned about other things and sort of issue like the cumulative effect and I understand that. We do have some differences, they want to cut penalty rates, we don’t. That’s the difference, we disagree.

Ross Greenwood: You want to unwind the company tax rates for example for small business?

Chris Down: Well, we haven’t made an announcement about that yet but we are seeing a lot of policy, we’re doing it one by one.

Ross Greenwood: There you go, the Chief Executive, the man mentioned in that conversation of the Council of Small Business in Australia is Peter Strong, he’s on the line right now. Many thanks for your time Peter.

Interview: Peter Strong, Chief Executive, Council of Small Business

Peter Strong: Thank you.

Ross Greenwood: Well, you heard the Shadow Treasurer there making reference to you in regards to where you agree and disagree, is this an attack on small business in Australia?

Peter Strong: Well, my members are saying they’re really concerned that it is. Why they’re saying it is when you look at the whole picture, we agree if someone is moving money around to dodge tax, go get them, I mean that’s not a debate anybody even had. Go get them, the trouble is this is picking up people that don’t do that, this is picking up people that pay someone who isn’t doing the right thing so now they’re going to have to set up a pay system to do that.

If you’re dodgy and you dodge tax you’ll find a way, that’s why we say, “Go and get them, go and hunt them, don’t make it harder for everybody else”. And you get a situation where a farmer and this is a good thing, they’re not affected by this rule but the stock and station agent down the road who was affected by the cycles of nature same as the farmer, is affected by this.

Then again Ross we get to the big picture, at the moment the only people that pay an award penalty rates on a Sunday are small business. Big business don’t pay it, because they did a deal with the Retail Union to remove award penalty rates on a Sunday, they’ve already done that. The company tax rate which is — Chris Bowen said they haven’t made a decision on yet but I’m still very comfortable they will make sure that the higher turnover companies don’t get the company tax cut, that has an impact upon small business.

Then we have the increase in the higher rate of tax for the highest earners, and again if you’re running a business and you have three or four lousy years or you invest all your money, you put your house up on the market, then you finally have a good yield, all over a sudden you’re paying more tax again. So, we will be meeting with Chris Bowen and the others, sitting down, and talking about this. We don’t want to see what’s happening overseas where governments seem to win because they are on a bandwagon with rich people, we want to see good policy come out that make sense.

Ross Greenwood: Okay, but pretty good policy would have to say that having discretionary trust where very wealthy and I mean he did mention the lawyers, doctors, are able to basically on a discretionary basis divert their income to other family members to be able to cut their taxation. That doesn’t seem to be necessarily fair compared with the vast majority of Australians who do not have that discretion, to redistribute their income and therefore get a tax break.

I would have thought that even small business operators if they’ve got a company sitting in there Peter they pay their employees, they can pay their family’s employees if they wish to and it effectively has the same impact as what they would be doing if they had distributed that money through a trust.

Peter Strong: Exactly, that’s the difference is we don’t see except, it makes Labour look like they’re going to go and get rich people or the people that are being dodgy. There’s not much of a change except for confusion for the small business person, fear about what these means and then maybe go to your accountant and find out exactly what’s going on.

There’s other people that are paying tax like things called Amazon, Uber, Apple who were dodging tax big time, a lot more money there and the other group that don’t pay tax of course is the unions and they own well over a billion dollars worth of assets between them. They make a lot of money out of that and they don’t pay tax, at all.

Ross Greenwood: Because they’re an association, isn’t that the strange quirk in our law that somehow Peter, the religions and associations don’t pay tax in that way?

Peter Strong: That’s right. My association doesn’t pay tax either, we don’t have a turnover like some other unions. I mean they’ve got lots of assets. We’re saying, “Okay, let’s have a look at these institutions if they’re turning over more than $20 million or they own more than $20 million worth of assets, go and tax them”. There are simply people that should be paying tax, we know they should be paying tax.

I agree with Chris Bowen, I agree with Bill Shorten, people are dodging on purpose what they should be paying, go get them but don’t make this class warfare and don’t give the impression to small business because other majors that somehow rather we’re being targeted because we are the employers and the innovators of the country.

Ross Greenwood: I’ll tell you what, great to have you on the program as always. Peter Strong is the Chief Executive of the Council of Small Business in Australia and it’s a very good point he makes. You really don’t want to be targeting those small businesses, but by the same token you do want to try and chase people who are deliberately dodging tax and being able to get away with it. Peter always great to have you on the program.


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