Remember that all business structures should incentivise entrepreneurs and enterprise says BDO

25 July 2017

Mark Molesworth, BDO Tax Partner said:

“The proposals being suggested for targeted tax reform around Trusts must be balanced with the need to incentivise entrepreneurial activity,” Mr Molesworth said.

“Two of the pillars of Australia’s tax system should be remembered in this debate: the tax system treats business structures sympathetically; and the Tax Office has significant powers to deal with those who abuse the system.” 

“Some of the concerns expressed about the use of trusts – that they can be used to achieve lower effective tax rates than are available to salaried employees – are a function of the system incentivising entrepreneurial activity and enterprise. In our view a tax policy setting that rewards law abiding entrepreneurs is appropriate. The Australian system achieves this at present through the way in which both trusts and companies are taxed.”

“Instead of picking one type of entity in the tax system and proposing changes, there is a need to look at the whole system - otherwise there is very real potential that we will become unattractive to entrepreneurs, small businesses and start-up enterprises . These businesses take risks and create thousands of jobs in Australia which all in-turn contribute to our tax system. Entrepreneurs do this instead of working in salaried jobs which have benefits and safety-nets – such as paid leave, parental leave schemes, sick leave and employment law security.”

“Rather than demonise all trusts, perhaps the focus should be on the appropriate taxation treatment of different types of behaviour and income earned from different sources. However, on its own, this has the potential to increase complexity. 

“What is really needed is holistic tax reform - not special pleadings dealing with specific entities.”