Budget 2013: Tax industry concerned ATO trust crackdown in budget will target small end of town

Tax and small business experts say they are concerned the government’s crackdown on trusts in the 2013-14 budget will extend to small businesses.

The warning comes after a push from the government to extract new funds from trusts. Larger trusts will now have to make Pay As You Go payments on a monthly basis, while the Tax Office has received new funding for a trust taskforce.

It is this taskforce with which the tax and small business communities are concerned. They suggest rather than focus on wealthy taxpayers, the taskforce will instead enforce a narrow interpretation of the law.

The budget contains $68 million for the Australian Taxation Office to investigate the misuse of trusts to conceal income, mischaracterize transactions and artificially reduce trust income amounts.

Pitcher Partners partner Theo Sakell told SmartCompany the language used in the budget is vague and has raised eyebrows.

The budget papers say the ATO will target “egregious tax avoidance and evasion”, in a move expected to raise $379 million over four years.

“When we see the word ‘misuse’, that’s a big word, and implies deliberate behavior,” Sakell says.

“We’re worried the ATO will be using this taskforce to even further harden their interpretation of the law.”

“We’re trying to make sure this targets the hardcore exploitation of law, rather than just disagreements over interpretations.”

Sakell says he’s concerned the crackdown could potentially catch smaller trusts in its grasp for revenue.

“We are certainly concerned the ATO’s more narrow interpretation of the law will be harnessed through these particular initiatives, and that will apply to the broader SME market.”

Executive director of the Council of Small Businesses of Australia, Peter Strong, also told SmartCompany he’d be concerned if the crackdown expanded to smaller trusts.

“We just have to make sure it doesn’t flow through,” he says.

Sakell says the industry will be watching to make sure the activity focuses on “exploitation, and not hardline interpretation”.

The ATO crackdown isn’t the only change in the budget which will affect trusts: larger trusts, along with super funds and other large traders, will need to make PAYG payments on a monthly basis – a move that is expected to raise $1.4 billion over four years.