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"$1 Million worse off": Expert weighs in on new tax settings for small business ☕📉🚨 · Money News

• 0:00
  S1: There is confusion and anger brewing about the Albanese government's
• 0:03
  S1: tax reforms, which are the most radical in decades, and
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  S1: they have been slammed by large sections of the business community.
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  S1: What is now apparent is that successful small businesses are
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  S1: going to be taxed through the nose under these proposals.
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  S1: These could be small firms who have started a website.
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  S1: They've started out of a garage, built up a brand,
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  S1: and when they go to sell one day, they're going
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  S1: to be taxed a lot more than under the previous plan.
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  S1: Gary Brown is a chartered accountant and principal of Hatcher Advisory.
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  S1: He's on the line for us tonight. Gary. Good evening.
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  S2: Thanks for having me, James.
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  S1: I really appreciate you coming on. For the average person listening,
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  S1: this stuff is complex. I'm assuming you've had a lot
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  S1: of frantic inquiries from a lot of people from all
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  S1: different steps in society trying to understand how they're impacted
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  S1: by this.
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  S2: Yeah, absolutely. We've had probably more emails in the last
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  S2: two weeks than I would have in a standard in
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  S2: a standard two month period, just on tax stuff. So
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  S2: whether it's just your mum and dad's mum and dad
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  S2: just trying to, you know, get by. Should I, should
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  S2: I buy a new house to live in? Should I not?
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  S2: Should I buy a business, should I not? Should I
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  S2: sell a lot of people asking me should I sell?
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  S2: And it's a hard one right now.
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  S1: Well, it is, but also people want to sell, I'm assuming,
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  S1: because they want to sell before these tax changes come in,
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  S1: either in 2027 or 2028, depending on whether it's in
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  S1: relation to capital gains tax or or trusts overall.
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  S2: Yeah, absolutely. So if you think about it, we've had
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  S2: over the last, you know, ten, 20, 30 years, we've
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  S2: had an idea about building, building, building wealth, building a business,
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  S2: creating something bigger and, and striving to achieve, you know,
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  S2: whatever your goals are. But people didn't sign up for
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  S2: doing that. And then handing, you know, 47% of the
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  S2: money over to the government.
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  S1: Uh, the impact on small businesses. And I just want
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  S1: to focus on this for a moment. Just explain why
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  S1: a small business would use a trust, what kind of
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  S1: trust they generally use and how that is going to
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  S1: be impacted. Now that we're being told that trusts of
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  S1: this nature will have a minimum tax of 30%.
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  S2: So I think that your local local cafe milk bar tradie, most,
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  S2: most small businesses would be set up under a trust
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  S2: because you'd have the mum, you'd have the dad. Both
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  S2: of them would work in the business. We would, you know,
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  S2: split the income between mum and dad and you know,
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  S2: we'd look to even out that the amount of profit
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  S2: that is allocated per person to pay the least amount
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  S2: of taxes possible, because both of them work in the
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  S2: business and under the old rules, that was great. And
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  S2: at a time when you would do really, really well,
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  S2: you might put some of that profit into a bucket
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  S2: company at 25 to 30% tax. But now doing that,
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  S2: the local person down the road, the local person who
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  S2: wants to reinvest into their business would have to continue
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  S2: to pay 30%, 37%, 39%, 47% to reinvest in their business,
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  S2: and they won't be able to bucket that money into
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  S2: a company to to reinvest at that lower tax rate.
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  S1: Yeah. And we've spoken about the fact that the bucket
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  S1: company is basically wiped out under these changes. Just as
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  S1: one example, if the Albanese government does pass this legislation,
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  S1: explain how this would work. I believe you've done some
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  S1: modelling on a cafe which is currently listed on the
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  S1: market in Brisbane. Now, when that cafe is sold, how
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  S1: much tax would the owners hypothetically pay? How much more
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  S1: tax under this proposal?
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  S2: Yeah. So I did some modelling on a cafe in Brisbane.
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  S2: You know, they're turning over $5.8 million, $1.4 million in profit.
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  S2: And they're asking for 4.3 million as a sale price,
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  S2: a very fair price. So when they sell and think
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  S2: about this, most cafes, they would have started from nothing.
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  S2: So under under the new the new changes they're going
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  S2: to be paying 2 million plus in income tax. Under
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  S2: the old rules it would have been less than a million.
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  S1: Just say that again. That's a critical point. Just go
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  S1: through that slowly so people understand it.
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  S2: Yeah, sure. So most cafes will start and they'll start
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  S2: with zero. So they'll take a small business. They'll have
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  S2: this idea, have this, you know, build an amazing team,
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  S2: buy the equipment, go into business, not knowing how they
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  S2: can pay their bills. They'll get and these guys or girls,
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  S2: they've got up to $5 million worth of turnover and
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  S2: they're doing really, really well. But they're going to sell
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  S2: the business or they're trying to sell the business right
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  S2: now for $4.3 million. And if they had a cost
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  S2: base of zero under the old rules, they would go
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  S2: 4.3 million, 50% discount, and then they'd pay income tax
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  S2: on 2.15 so that at 4,047%, that'd be paying around
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  S2: that million dollars in tax. Under the new rules, this
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  S2: exact same scenario, exact same business, exact same hard working
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  S2: family will end up paying tax on the $4.3 million
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  S2: sale at 47%, and that's over $2 million.
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  S1: Unbelievable. So for all that hard work, they end up
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  S1: $1 million short of where they should be.
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  S2: Absolutely. And then people, you know, politicians will talk about
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  S2: small business exemptions and CGT rollovers. But but the reality
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  S2: is none of it applies and none of it will
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  S2: apply for the average person out there who's under the
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  S2: age of under the age of 60. None of it
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  S2: will apply. So it doesn't help. It doesn't help the
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  S2: next generation.
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  S1: Mhm. Now let's be clear. How are small businesses or
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  S1: businesses in general or start ups? How are they going
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  S1: to try and avoid these rules in the future?
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  S2: Yeah. So, you know, we'd never we'd never talk about
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  S2: tax evasion.
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  S1: No. And I'm asking that because you know the rules
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  S1: back to front. I do, I do know I'm back
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  S1: to front. So what's what's going to happen? I knew
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  S1: you'd say that. Um, what.
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  S2: What is definitely going to happen is, you know, all
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  S2: accountants out there straight away. We already we as soon
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  S2: as we hear these rules, we know how to get
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  S2: around them, or we know what the best way to
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  S2: do it. So we'll end up moving. Business owners will
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  S2: move into companies. Companies will end up paying 25% tax
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  S2: rate on the profits that they make every year going forward.
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  S2: And then when they sell their business, if they sell
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  S2: the business and that's an if. But, you know, when
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  S2: they sell the business, then they're going to end up
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  S2: just having to cough up that money. But what it's
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  S2: actually going to do, which has, which I'm most concerned
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  S2: about James, is it's not the tax or the, the
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  S2: forecast of tax that may be generated in the future.
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  S2: It's the hit to confidence to people to invest in
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  S2: our country.
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  S1: That's it.
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  S2: That's what I'm most concerned about is what why would
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  S2: you go into business if you're going to give half
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  S2: of the profit away on your exit?
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  S1: That's it. And as we know, for every business that
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  S1: does do well and is in a position to sell and,
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  S1: you know, make a profit of several million dollars or
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  S1: whatever it may be, there's 10 or 20 or 50
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  S1: or 100 businesses that don't make it that go to
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  S1: the wall.
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  S2: Yeah. And, you know, I as a tax professional, I've
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  S2: been doing this, uh, running a business now for, for
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  S2: 11 years. And I'm the one who's at the coalface
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  S2: of getting abuse from clients about their tax bills. And
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  S2: I'm a little bit concerned about over the next couple
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  S2: of years, how much more anger they're going to be
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  S2: from everyday Australians. And they don't get too directed at
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  S2: the politicians. They don't get to really directed at people.
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  S2: They directed at their accountants. And we're the ones that
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  S2: have to tell someone you've got to pay. I know
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  S2: all this tax.
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  S1: I know, and I, I fear for some people they
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  S1: won't realise the true nature of these changes until they
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  S1: do get that tax bill.
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  S2: Yeah. And that that will shock them and it will
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  S2: be hard to hit. And it's you know, it's not
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  S2: it's not just you know, politicians will push the you know,
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  S2: they talk a lot about the properties, but it's not
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  S2: just properties. It's the small business owners. It's the people
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  S2: that are buying shares, crypto, gold, silver. It's people that
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  S2: are investing to create a better future.
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  S1: Well, yeah, and look, to be honest, the more I
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  S1: think about this, Gary, the more I've sort of come
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  S1: to the conclusion that if this was just about winding
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  S1: back negative gearing or restricting negative gearing, or capping the
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  S1: number of homes that you could negatively gear in the future,
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  S1: and perhaps this was all about property, and it was
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  S1: designed to get more young people into the market, and
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  S1: there was a strategy in place for that. It would
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  S1: be very, very hard, in my view, to be arguing
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  S1: about that tonight. But this is far wider than anything
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  S1: that we were promised. And to think we've still got
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  S1: politicians saying this is all about the property market. I mean,
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  S1: as you just say, it's about mum and dads who
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  S1: have had shares that are paying dividends for a long
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  S1: period of time, and people that made decisions 5 or
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  S1: 10 years ago to start a business to, to grow
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  S1: and could be at that stage now when they're about
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  S1: to sell, they might be holding on for a few
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  S1: more years that are suddenly faced with a very, very
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  S1: difficult decision within a short period of time. I've got
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  S1: to run. I really appreciate your time tonight.
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  S2: Thanks, James. Thanks, everyone.
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  S1: That's Gary Brown, a chartered accountant and principal of Hatch Advisory.