Government Should Act Urgently to Fix Impact of ATO Small Business Ruling

03-June-2010

Shadow Assistant Treasurer, Sussan Ley has called on the Government to act immediately to provide certainty for small businesses that will be slugged with higher taxes as a result of a ruling released by the Australian Tax Office (ATO) yesterday.

Taxation Ruling TR 2010/3: Division 7A loans: trust entitlements is exactly the same as the draft ruling from last December which it replaces, indicating that neither the ATO nor the Government have listened to the very real concerns of small business.

The ruling will affect all those small businesses that operate through a trust structure by taxing money that private companies receive from a trust even when the money is not actually paid. The ATO ruling reverses a long standing practice of operating small businesses under these structures.

What this ruling means is that Australians who have set up their businesses in these structures will be forced to pay more tax and will have less money to reinvest and grow their business.

“With less than a month to go in this financial year the Government should not stand by and allow small businesses to be hurt by this retrospective ruling”, Ms Ley said

The Taxation Institute of Australia has said that “hundreds of thousands of families and small businesses operating through trusts will be hit and many may go to the wall”.

This is another attack on small businesses at a time when many are struggling to manage their finances and grow.

The Opposition has indicated support for Henry Review recommendations that would see the Board of Taxation able to intervene in processes such as these and has also endorsed Henry’s view that the trust provisions of the Tax Act need an urgent rewrite.