Under fire

As if Australia’s entrepreneurs didn’t have enough to deal with, what with the patchy economic recovery, problems accessing finance and the usual challenges that emerge as this time of year, such as budgets, planning and tax season.   Suddenly it appears that entrepreneurs are under attack from all sides from a Government – or at least some Government agencies – intent on making things harder for business owners.

The latest attack comes courtesy of the Australian Taxation Office, which made its crackdown on discretionary trusts official yesterday when it issued a ruling on the controversial issue of unpaid present entitlements.

Discretionary trusts are a common part of many SME corporate structures and the specific structure under attack here – whereby a trust makes a distribution to a corporate beneficiary (which is taxed) but actually retains the cash behind that distribution to reinvest in the business – is a common one.

Yes, there are clearly instances where the cash retained by the trust is being used by in the wrong way to buy personal assets, but as Yasser El-Ansary from the Institute of Chartered Accountants said today, most entrepreneurs use the funds to fund their future growth – and end up paying more tax in the long run.

The ATO previously approved these structures, but has now effectively decided everyone is cheating the system and will be treated in the same way. Many parts of the ruling are retrospective, potentially exposing some entrepreneurs to big tax liabilities.

The costs could run into the hundreds of millions and some experts fear businesses could go the wall as a result.

The second area where the Government is at odds with business is over the new R&D tax credit. Tax experts say the new credit scheme will cut the amount of assistance received by many current grant recipients, while the Government says that at the moment, the bulk of the funding is going to a small group of companies.

From what I can see, there is merit in both views, although the idea that a group of business owners could see the amount of support they receive fall dramatically is worrying. The scheme needs further tweaking, but there’s one problem – the tax credit scheme is due to come into force in less than 30 days. At present, too many queries, questions and problems are hanging over the thing.

The Resources Super Profits Tax isn’t exactly an issue that is directly affecting SME owners, but any entrepreneur in the mining sector will tell you that this attack on a specific sector is unlike anything we’ve seen before.

And it’s not exactly a signal that the Government understands the risks an entrepreneur must endure to get a profit-making venture up and running.

Of course, Australia isn’t the only nation around the world focussing on raising extra tax revenue from entrepreneurs. Right around the world, governments are looking for ways to plug big budget deficits and repay high government debt.

Don’t expect politicians to stop whacking entrepreneurs any time soon.