Shorten Attacks Business Class

Bill Shorten appears committed to destroying Australia’s middle and aspirational classes. His latest ill-conceived attack on discretionary trusts makes this abundantly clear.

Tax minimisation is not a crime

Simply put, among other things, trusts allow those running their own business (you know, the people that run those things which drive our entire economy) to split their income and minimise their tax.

For typical ‘mum and dad’ type small businesses, it allows mum and dad to effectively delay the point at which they start paying tax at the 37% rate on income earned over $80,000 – by splitting the income between mum and dad. For surgeons earning millions of dollars, it allows them to reduce the amount of their income falling into the highest 45% bracket (on income over $180,000).

As Kerry Packer made clear, anybody who doesn’t do this needs their head read (from 7:15 on):

Trusts can potentially benefit pretty much anyone running their own business.

Soaking the ‘rich’

Of course, this brings us to the envy that Shorten is trying to gorge himself on with his new policy: the fact that PAYE employees cannot benefit from trusts in such a manner. Apparently, this is ‘unfair’ and not ‘equality’ – never mind the fact that PAYE employees are guaranteed a pay cheque and enjoy the benefit of a raft of laws which disincentivise their dismissal (or, the case of many public servants, ludicrously allow for their ‘permanency’).

All up, Shorten reckons he can raise about $17 billion over 10 years (still nowhere near enough to put even the slightest dent in our budget deficit by the way). Of course, you’ll have to forgive my skepticism on Shorten’s modelling here: after Labor’s mining tax debacle, anything is possible – particularly when you’re dealing with a group of people who aren’t just going to let you take their money away like a grocery off the shelf.

The fact is that every method of earning income has its advantages and disadvantages – and the ability to use trusts to moderately minimise tax is a fair reward for someone who has taken on the responsibility and risk of running a business.

If you’re an employee and you don’t like that, I have some wonderfully simple advice for you: go and start a business. Go and put your money on the line; go ahead and risk the quality and certainty of your ‘lifestyle’; go and get a loan to fund the capital expenditure needed to start up; go and find your own customers; go and put in the effort required to do a good job and keep those fickle customers happy; go and employ your own people to ‘take advantage of’ and set up your own fiefdom; go and spend the time managing those workers and all their concerns – both legitimate and moronically inane; go and research all the laws and regulations that apply to your business so that a public servant somewhere doesn’t hit you with a ‘prescribed notice’ and so that a lawyer somewhere doesn’t issue you with a writ or claim; go and pay for all the administrative costs required to set up the enterprise and keep it running; don’t forget to insure yourself and comply with all the terms and conditions of your policies (lest you have coverage denied)… and when the income finally comes ‘rolling in’, be sure to go and get the professional advice you need to legally minimise your tax in the process.

And when you do, be sure that you understand that this is not a government that needs any more of your money:

Budget 2017

Squeezing the poor

The biggest fallacy of Shorten’s policy is that the proposed 30% tax would apply to all trust distributions.

Excuse me?

Without even the slightest hint of brains, Shorten hasn’t realised (or has he?) that his policy would hit poor and middle class business people the hardest, while providing a relatively minor nuisance to richer business people. That’s because imposing a 30% trust tax on a small business person trying to minimise their exposure to the 37% tax bracket is far more significant than taxing the same rate on a richer business person looking to minimise their exposure to the 45% tax bracket.

If Shorten’s real aim was to tax the rich, then why didn’t he at least propose a tax free style threshold before the 30% trust tax applies – for example $20,000 per adult? Or just simply introduce a new personal income tax bracket for those earning over $350,000? I suspect the answer to these questions is that, using classic Ponzi-economic principles, Shorten knows there’s plenty of money to be made off the poor and middle classes:

But smaller trusts that don’t generate enough income to pay $137,000 or more to beneficiaries would suffer under Labor’s policy, as they would currently incur average tax rates below 30 per cent. Labor reckons it will raise about $1bn a year from this group.

While being little more than blatant tax grabs, either of the above alternative measures would at least have avoided the ridiculous (and cynically political) exemption Shorten has offered farmers – who are now apparently ‘more equal’ than anybody else in business when it comes to trusts.

Better still, Shorten could well have left things alone, done none of the above, realised that the government already makes more than enough revenue and found ways to encourage people to start businesses and employ people – rather than shooting them for trying:

Trickle down may sound ‘unfair’ to some. However, it’s the only sensible option when you consider the tried and failed alternatives of ‘progressives’, communists, socialists and totalitarians – such as the gravitationally challenged ‘trickle-up’ and ever-cheerful ‘no trickle at all’ (the latter is often a consequence of the former).

Using fruit picking as an analogy, governments generally have three options when it comes to matters like this:

– encourage and reward people who take on the effort and risk of climbing the tree to pick as much fruit as possible;

– encourage people to scavenge at the bottom; or

– shoot anyone who climbs the tree.

The first option is consistent with evolution and results in the most good fruit being picked – fruit which is ultimately shared. The second and third options (often used together) feed envy, foolishly fight evolution and result in less for everyone. They also result in no-one being willing to climb the tree and everyone being left to fight for scraps.

Now where have we recently seen the outcome of those second and third options I wonder?

Don’t think it can’t happen here

Speaking of Venezuela, perhaps the most galling thing is that if you type ‘Venezuela crisis’ into Google, you’ll get a who’s who of leftist publications all trying to take you on ‘a journey’ to ‘explain’ how it all came about. This is despite the fact that these nitwits:

Venezuela key indicators graphic

That graphic was from 2012. I wonder how those extreme poverty and inflation stats are looking today?

And who could forget our own brigade of moronic Aussie Chavistas:

“Dear President Chavez, “We, the undersigned citizens of Australia, would like to extend a warm invitation for you to visit our country. We have watched developments in Venezuela with great interest. We have been impressed by the effort your government has taken to improve the living standards of the majority of Venezuelans. [TMR: In 2012, Venezuela’s GDP per capita was at the same level as it was in 1970 and significantly less than it was in the late 1970s – think about that] “We have also noted the moves that your government has begun to make to create a society based on popular participation in all spheres of society — from the workplace up to the national government.”

The letter was signed by various leftist academics, union leaders, Greens and activists, including Phillip Adams, former CFMEU boss Andrew Ferguson, Lee Rhiannon and John Pilger.

And these ones too:

In 2008 a collective of our snowfield socialists – including the ABC’s Phillip Adams, propagandist John Pilger, the Greens’ Kerry Nettle and Kevin Rudd’s nephew Van Thanh Rudd – begged Venezuelan strongman Hugo Chavez to come teach Australians a lesson:

“Every country has its own traditions and culture and has to find its own solutions, but what Venezuela has been able to achieve in so little time will be a source of inspiration and ideas for many in Australia”.

And that’s the biggest worry of all: the majority of Australians right now are miles away from linking policies like Shorten’s on trusts and negative gearing to their final outcomes.

Outcomes recently experienced in places like Venezuela and Greece.

Outcomes which are experienced without exception in any country that thinks socialism or communism is the answer.

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36 Responses to Shorten Attacks Business Class

  1. Fred

    Easy to get around.
    If mum and dad are running a business through a trust structure, they just have to pay themselves a salary.
    Problem solved. And Bill won’t get his 30% tax on distributions.

  2. .

    Let’s see the Guardian publish this:

    What a total failure. Economically, humanitarian, civil rights…

  3. cuckoo

    SBS routinely explains the Venezuelan catastrophe as caused by a “falling oil price”.

  4. stackja

    Australia needs more taxes to pay for all the leftist ‘promises’.

  5. Bruce of Newcastle

    That graphic was from 2012. I wonder how those extreme poverty and inflation stats are looking today?

    Inflation was 50% last week.
    Just for that week alone.

    Venezuela Bolivar Loses A Third Of Its Value In The Past Week (Wednesday)

    And yesterday…

    And The Least Safe Country In The World Is…

    Yep, as you guessed. Socialism doesn’t seem to be working out too well does it?

  6. Mollusc

    Ex small business owner here.

    Retired and left the business but retained a small interest that sits in our Family Trust (where it has been for many years). Those distributions are our main source of income.

    Under Bill’s cash grab we will now pay 30% on all of that income…no tax free threshhold, no refund of excess tax. This effectively mean an income cut of somewhere in the region of $15,000 per year when we were only earning $60,000.

    And no we can’t pay ourselves wages (no business activity) and there is no specific opportunity to sell or transfer (CGT).

    A tax grab on the not so well off I believe.

  7. Texas Jack

    The problem ain’t Shorten. He’s an easy target for anyone with the Jatz Crackers and a willingness to take him on.

    Repeat after me Marcus – the problem is there’s nobody with the slightest street-cred pushing back against Shorten madness in the Turnbull government (and Shorten & Co well know it)…

  8. JC

    Shorten Attacks Business Class

    Obviously he want to travel in First.

  9. Pete of Perth

    I work with people (younger than me) who have defined benefits super. Lucky bastards. Shouldn’t Shorten be soaking them as well?

  10. notafan

    The opposition has unveiled plans to impose a 30 per cent tax rate on payments to adults from discretionary trusts.

    That has to be distributions, doesn’t it?

    It can’t apply to salary and wages.

    I very much doubt they will get their 17 billion but whatever.

    There will be a few suckers who can’t rearrange their affairs, no doubt.

    Great for accountants this kind of thing.

  11. JohnA

    Sigh. Still the unionists and the ALP have this blind spot: a dead taxpayer or a dead trust pays NO tax at all.

    They are reading the wrong fairy tales. The fable about Killing the Goose that lays the Golden Egg/s doesn’t seem to be on their radar.

  12. Tim Neilson

    There will be a few suckers who can’t rearrange their affairs, no doubt.

    But others who aren’t “suckers” as well – see Mollusc’s position, which doesn’t result from any wrongdoing or stupidity (except the stupidity most of us have engaged in by not getting all our money out of Peanut Head and the Termite’s reach).

  13. Pete of Perth

    Even better, I know couples who work for the same PS organisation who are both on defined benefits super. Even luckier.

  14. John Bayley

    There is also the possibility of making it “fair” by allowing PAYG taxpayers to lodge household-based income tax returns, as they do in the USA and in many countries in Europe.
    In essence, doing so recognises that if a spouse stays at home – perhaps to look after children, there will be no disadvantage where the main breadwinner earns most of the income, as opposed to where the same level of income is earned by both members of the couple.
    Unfortunately this will never fly in Australia, because it would result in less tax being collected by the thieves in Canberra.
    That’s why Tits has to make it “fair” by increasing the tax on low to middle income small business couples.
    That man is a grub… but then again, I think he was correct when he noted that the Liberals are just annoyed because they did not think of it first!

  15. min

    Surgeons and maybe others have to have professional indemnity insurance , plastic surgeons pay $100,000 pa for example. Pity we cannot sue politicians when they make mistakes.

  16. rickw

    Dear Bill and Malcom,

    I will have the last laugh, I will leave Australia for good before I will submit to any more of your theft from me and my children. I trust you so much that 50% of my wealth is already in the USA.

    Go and fuck yourselves you fucking communists.

  17. Docket62 (deplorable)

    But others who aren’t “suckers” as well – see Mollusc’s position
    And for Mollusc:

    The funds are paid to a trust, which usually has a corporate trustee. Kill the trust and engage the Pty Ltd and have the funds paid to that. Then pay yourself as you would using normal thresholds as you do.

    not hard

  18. Sydney Boy

    Even better. Change it into a “not for profit” and pay yourself a salary at normal tax rates. And you can also have the “not for profit” give you untaxed benefits worth up to $25k per year. Most of these tax-dodging organisations (ACF, ASRC, Greens, etc) give their employees a $25k pre-loaded Woolworths debit card. Therefore your groceries for a year are paid out of pre-tax dollars. All the charities (something like 50,000 of them are registered in Australia) do it.

  19. H B Bear

    Peanut Head must have been told there are now more leaners that lifters. I’m sure he is right.

    Once Tits, Plibbers and Albo (both hard Left) get their hands on the levers the next few years are going to be very ugly – beyond what anyone thought possible. And Boy Wonder will be lapping up what the Keynesians in Treasury spoon feed him.

  20. ManDownSouth

    Allow income splitting as is done in some overseas countries. Oops, I forget, Labor is opposed.

  21. calli

    Shorten Attacks Business Class

    Surely it shoukd read “Shorten Attacks Economy”. Either way, it’s terrorism.

    Book ‘im Danno.

  22. Peter Greagg

    Great post as usual Marus.

    What I don’t understand is why people don’t change from a discretionary trust to a $2 private company to get around Shorten’s cash grab?

    Trusts have to distribute all income otherwise the trust gets taxed at the top marginal rate. This means all profit usually get distributed.

    However, companies get taxed at 30% of profit. But, and it is a big but, this company tax is only a withholding tax and the dividend receipants have access to the usual income tax rates including the tax free threshold. Mum and dad could be the two directors of the company, and it’s operation would be similar to a discretionary trust.

    Also a possibility would be to establish a partnership, where all profit (income) is streamed to the partners (ie mum and dad) who get taxed at the appropriate income tax rates, including the tax free threshold.

    Food for thought!

  23. Roger

    Simply put, among other things, trusts allow those running their own business (you know, the people that run those things which drive our entire economy) to split their income and minimise their tax.

    All well and good, but as I’ve been arguing for decades, the government should also permit single income families to split their income for tax purposes.

    They might remain worse off than their double income peers, but it would allow more mothers the option of raising their own children rather than farming them out to the child care-educational complex.

    And surely that would be a good thing for the nation?

  24. Sydney Boy

    But Peter, Companies get taxed at 30% from $1 in profit; whereas people pay not tax on the first $18,000 earned. There are fors and againsts for companies and salary, such as GST credits in a company, superannuation at 15% for a person, etc. It’s a balancing act, and a lot of small business people – well the smart ones, anyway – will organise their affairs each year to (shock, horror) minimise the amount of tax they pay. Company making too much profit and therefore paying too much tax? Pay a higher salary or give a Christmas bonus to yourself. You are paying too much tax? Reduce your salary so that tax is paid at 30% rather than your personal marginal tax rate. I think the point at which the taxation paid is equal between being a company and receiving a salary is about $140k.

  25. .

    Sydney Boy
    #2459305, posted on August 4, 2017 at 7:39 pm
    Even better. Change it into a “not for profit” and pay yourself a salary at normal tax rates. And you can also have the “not for profit” give you untaxed benefits worth up to $25k per year. Most of these tax-dodging organisations (ACF, ASRC, Greens, etc) give their employees a $25k pre-loaded Woolworths debit card. Therefore your groceries for a year are paid out of pre-tax dollars. All the charities (something like 50,000 of them are registered in Australia) do it.

    Sure, I now run the Catallaxyfiles Player’s Welfare Trust.

  26. Peter Greagg

    Sydney Boy
    The point being that despite the company paying 30% tax on profit, the dividends flow to the shareholder where the dividend is counted as income in the hands of the shareholder, including a credit for the company tax paid by the company (franking credits). So the result is after the dividend is received by the shareholder, the company profit is taxed the shareholders hands at their marginal income tax rates, as if the company didn’t exist.
    Simple really.

  27. Tel

    The company tax only turns the corporation into a tax COLLECTOR not a taxpayer.

    I blame the school system.

  28. Docket62 (deplorable)

    Actually company tax rates are 27.5%, so even without a trust the net returns to individuals (employees rather than beneficiaries ) is the same on a net position. Each would have the TFT to 19K free. We add in negative gearing of 60K under personal names and voila… for 4 people $132K tax free, balance at 27.5%

  29. zyconoclast

    The reason Shorten attacks business class is because he only travels first class.
    Sod the proles.

  30. OldOzzie

    Trusts tax will cause economic damage in the name of equality

    The Australian12:00AM August 5, 2017 – JUDITH SLOAN

    First it was fairness, now it’s inequality. Bill Shorten and his Labor colleagues clearly reckon they have stumbled on a winning organising theme to regain office at the next federal election. That so many of their proposed policies are an effective repudiation of the Hawke-Keating legacy doesn’t seem to worry them at all.

    Recall that this legacy placed primary importance on growing the economic pie by unshackling the economy of its efficiency-sapping rules and regulations. Think: floating the dollar, removing capital controls, deregulating the financial system, reducing tariffs and other forms of import protection, selling government-owned businesses, retreating from centralised wage fixing and compulsory arbitration, modernising the tax system, and the list goes on.

    It’s unimaginable that a Labor government led by Shorten would even contemplate these sorts of reforms, which involved the transformation of the economy to be­come open, competitive and vibrant. To be sure, there were winners and losers in the process, but the productivity gains were large for the Labor government to sell the program of change.

    Australia went from a position of having average per capita income levels that placed us around 20th among developed economies to being in the top five. This was a truly remarkable outcome and the benefits of that suite of policy reforms are still felt today.

    The contrast with the policy approach being adopted by the present Labor opposition could not be starker. Rather than prioritise pol­icies that will promote higher rates of economic growth, an obsession has developed in which the main objective is to fleece higher and middle-income earners even more because it is deemed to be fair and will lead to lower inequality.

    Of course, opposition Treasury spokesman Chris Bowen should know better. After all, the empirical evidence is clear: the best way to reduce inequality is to ensure that people get jobs. Imposing bigger tax burdens on higher-income earners and businesses inevitably leads to less investment, less risk-taking, reduced work effort and ultimately fewer jobs in total.

    Let’s take a look at yet another lurch to the left by Labor: the decision to impose a minimum tax of 30 per cent on trusts. Note that farm, charitable, disability and philanthropic trusts will be exempt. According to confidential costings by the Parliamentary Budget Office, this move will lead to additional revenue of $1 billion a year, which is complete chicken feed given income tax alone will raise more than $185bn this financial year. So why would Labor make this change if the payback is so low and the damage to small business owners, many of whom use trusts to structure their financial affairs, could be substantial?

    Let’s be clear on one thing: the change being proposed will not affect the really wealthy. Where the individual trust distributions exceed $137,000 a year, Labor’s policy has no effect. For those trusts with such high distributions, their underlying structures generally will be much more complicated than a mere discretionary trust. They will often involve trustee companies, bucket companies, partnerships and other complicated means of structuring business and family financial affairs.

    And while tax minimisation may be one objective of these arrangements, asset protection and estate planning are often more important considerations.

    For many modest small businesses, Labor’s trust policy could be punitive indeed. Instead of paying average tax rates of well under 20 per cent, all of sudden trust beneficiaries, many of whom may work directly in the business or contribute indirectly, will be hit with a tax rate of 30 per cent.

    In all likelihood, many small business trusts will be terminated and other means of arranging financial affairs will be considered. We should not forget that the PBO costings, modest though they are, will not have taken into account the potential for behavioural changes. Rather than saving a Labor government $1bn a year, in practice, the policy may even deplete revenue.

    It is interesting to note here that the comprehensive tax review commissioned by the Rudd Labor government and undertaken by former Treasury secretary Ken Henry did not recommend any change to the taxation of trusts. Henry simply noted that “trusts can be used as an alternative structure for conducting business activities. Trusts are largely taxed on a flow-through basis, with the income of a trust allocated to its beneficiaries based on their ‘present entitlements’. However, losses do not flow through to beneficiaries.”

    His only recommendation was the trust rules be updated and rewritten to reduce complexity and uncertainty around their application, particularly in relation to capital gains derived through trusts. Indeed, if there were one dominant theme of the Henry tax review it was that the tax system must be assessed as a whole in terms of efficiency, equity and simplicity. It makes no sense to tweak individual parts without understanding what this does to other parts of the tax system. This is one of many criticisms of Labor’s hotch-potch tax policy package.

    Didn’t the Liberal Party also contemplate taxing trusts as companies, commissioning John Ralph to undertake a comprehensive review of business taxation? The key theme of the Ralph review was, in fact, to align the company tax rate with the top marginal income tax rate.

    At this stage, the company tax rate is 30 per cent for large companies and 27.5 per cent for smaller ones. These rates compare with a top marginal income tax rate of 45 per cent plus a two percentage point Medicare levy. Under Labor, this rate will go to 49.5 per cent — an extra two percentage points on the marginal income tax rate and an increase of 0.5 percentage points in the Medicare levy.

    It is the gap between the company tax rate and top marginal tax rate that drives a lot of the tax minimisation and arbitrage that occurs. And this will get worse under Labor, not better.

    Indeed, the chief weakness in our tax system is the design of the income tax schedule and the disincentives it creates for investment, work effort, risk-taking and entrepreneurship. Not only is the top marginal tax rate far too high, it also cuts in at too low a level — $180,000 a year, a figure that has been unchanged for many years. In addition, the tax-free threshold is too high, leading to a steeply rising set of marginal tax rates. Compare this with New Zealand, with a top marginal tax rate of 30 per cent and a company tax rate of 28 per cent, and you can appreciate how out of alignment is our tax system.

    It is hardly surprisingly in Australia that there has been a dramatic increase in the number of trusts and other legal entities that seek to deal with the gap between our top marginal income tax rate and the company tax rate.

    But what Labor’s policy on the taxation of trusts will do is to hurt honest small business owners that distribute relatively modest sums to beneficiaries while not laying a glove on the very wealthy.

    The best outcome will be for Labor to reconsider some of these ill-advised tax policy initiatives — applying the higher Medicare levy only to those earning more than $87,000 a year will lead to the mother of all effective marginal tax rates and there is a major loophole in Labor’s negative gearing policy — lest serious economic damage is done in the name of pretending to reduce inequality.

  31. OldOzzie

    The Punch Line from Judith Sloan The Australian Article above

    Indeed, the chief weakness in our tax system is the design of the income tax schedule and the disincentives it creates for investment, work effort, risk-taking and entrepreneurship. Not only is the top marginal tax rate far too high, it also cuts in at too low a level — $180,000 a year, a figure that has been unchanged for many years. In addition, the tax-free threshold is too high, leading to a steeply rising set of marginal tax rates. Compare this with New Zealand, with a top marginal tax rate of 30 per cent and a company tax rate of 28 per cent, and you can appreciate how out of alignment is our tax system.

  32. Barry 1963

    Here’s how it works: the government looks at its spending commitments and determines it needs $X. It must then raise this sum. Sources of revenue include: taxes, interest, business profits and dividends, borrowings, printing money etc–however, taxes do the heavy lifting (except in pre crisis Greece). So, the government must tax. Here’s my issue. For every dollar in taxes dodged by someone, someone else must pay. So, if Packer avoids $100,000,000 in taxes, we poor suffering plebs must pay instead. It’s not envy of the rich, it’s just a question of fairness.

  33. Marcus

    Barry – firstly, it’s Packer’s money, not yours or mine. He earned it. Secondly, the Packers of this world don’t put that money in a pile and go swimming in it. They invest it. And I’d rather they did than the government any day of the week.

  34. IDefender of the faith

    Shorten is building a campaign strategy based entirely on taxing wealth. Along the way he plans to provide powers to unions that among other things will guarantee their access to employer premises. Sadly these developments are receiving no scrutiny from a government occupied by the factions and egotists who see personal benefit in the intraparty war over the State’s intervention in bedroom status.
    Turnbull needs to take all the fuczers to the woodshed on Monday and make it. Dry clear that the public interest is in immediate concerns like the budget deficit, weak consumption and employment outlooks and energy.
    Shorten’s rising potential to win an election is the direct result of coalition MPs lack of serious intent.

  35. Barry 1963

    Marcus, the point is, if Packer doesn’t pay, I pick up the shortfall. I don’t mind his being rich, but if someone’s tax avoidance means I pay more I do mind. Do you volunteer to pay the taxes people like Packer don’t pay?

  36. Rolf Hedt

    Rickw 👍

    Im thinking about your move too! Theses prick dont get it! USA and other low tax countrys will get a shit load more business and new immigrants from Oz because of the stupid communists were getting/got in Australia.

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