Family business attacked
Wednesday, May 14, 2008/
The decision announced in the federal budget to reverse two provisions governing family trusts operated by small businesses is a surprising move says PricewaterhouseCoopers partner Paul Brassil.
“The Government’s re-introduction of these limitations will affect the ability of small business operators to keep their enterprises in family hands,” he says.
The budget announced that any distributions outside the family group are subject to family trust distributions tax. Who is in or outside the family group is determined by reference to a nominated individual.
In 2007 the previous government extended the family group to include lineal descendants of a nephew, niece or child of the nominated individual or the individual’s spouse. “Changes to the definition of ‘family’ in the family trust election rules will deny certain family members such as great grand children the opportunity to share in the benefits of the family business,” Brassil says.
“The previous rules, amended just 12 months ago, solved a long standing anomaly regarding businesses run through family trusts. The ‘new’ rules will likely throw family trust elections into turmoil and create a barrier for small business owners from passing on their businesses to future generations,” he says.
Deloitte Growth Solutions tax partner Spyros Kotsopoulos says: “The limiting of beneficiaries means choosing the nominated individual becomes critical and is likely to cause great distress to families trying to nominate one sibling over another.
“Income accumulated in old family trusts can no longer be passed through to great grandchildren without suffering an additional tax impost. Family groups may choose to wind up the trust and suffer the tax consequences if they wish to pass on benefits beyond the restricted family group.”