A proposal by the federal opposition to enforce a minimum 30% tax rate to be paid by discretionary family trusts has the potential to cost small business owners $10,000 in extra tax.
Currently many small business owners run their income through a discretionary family trust which allows them to distribute income to their over 18 children who are beneficiaries of the trust.
Because most of these beneficiaries are on very low wages because they are either at school or university, their marginal rate of tax is much lower than their self-employed parents.
The Federal opposition’s proposal is designed to target high income earners using these discretionary trusts and not small business owners such as plumbers or electricians. But these small business owners may be innocent bystanders when it comes to this policy change.
This can’t take effect unless the Labour government gets into power, so in the meantime if you are currently a small business owner with 18 year old children at school or university you should speak with your accountant about the possibility of using a discretionary trust to reduce your income tax.