What’s the difference between wages and trust distributions? Senators want to know

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A fast-tracked Senate inquiry into trust tax overhauls heard relatively simple questions about how distributions work, as experts fear unintended consequences. The post What’s the…

A fast-tracked Senate inquiry into trust tax overhauls has heard relatively simple questions about how distributions work and who would be affected, despite small business and accounting experts warning of major costs, new compliance burdens, and the need to delay consequential reforms.

Last week, the Senate economics committee commenced a two-day hearing on the government’s plan to introduce a new minimum 30% tax on discretionary trusts, a financial structure often used by small businesses.

On Thursday, Greens Senator Nick McKim asked witnesses how the reforms would change the way small businesses using discretionary trusts pay their staff.

Matthew Addison, until recently the chair of the Council of Small Business Organisations Australia (COSBOA), said payments to staff directly employed by a business — who are not beneficiaries of the discretionary trust — would remain the same.

Skye Cappuccio, CEO of COSBOA, added that small businesses using discretionary trusts are likely have few actual employed staff.

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Instead, family members working within the business are compensated with distributions, not wages.

“So [the reforms] will change the way that a small business pays staff, if those staff are family members—is that what your evidence is?” asked Senator McKim.

Cappuccino said no, not always, but “obviously, there are a lot of different ways of doing this… often [family members] will be receiving the distribution as the way of remunerating them for the efforts they put into running the business”.

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