Budget 2011: Resellers blast changes to family trusts, contractors

Although the Federal budget had good news for small businesses, two key changes could have serious consequences for many resellers.

The Government's crackdown on family trusts ends the tax minimisation strategy allowing their owners to claim $3333 tax free by removing the low-income tax offset for the non-work income of minors.

The budget papers noted that high-income earners were streaming income to minors to dodge tax. It expected the changes to save $740 million over four years.

Tony Gattari, head of corporate development and strategy with online retailer eStore.com.au, lambasted the Government’s decision, warning that it could see many small business owners pack up shop.

“This is a big disincentive for small business in Australia,” Gattari said.

“Many small businesses work the most and earn the least; if that incentive is taken out they will get out.” 

He said that with 1.4 million small businesses employing 80 percent of workers any moves to discourage operators could destabilise the economy.

And tougher reporting guidelines for companies that employ contractors will also have an impact on the channel.

Under the Government’s plan, when a company pays a contractor or that contractor pays another contractor they must tell the Government what was paid. It was expected to discourage companies from hiring contractors, especially those in the IT sector.

“I really believe they’ve made a tragic mistake there,” Gattari said. “Many organisations will simply go offshore for their contracting.”

But Gartner analyst Ian Bertram said the contactor issue was “a bit of a red herring”; Government projects, including the NBN, were heavily reliant on the use of contractors.

“I think this is just politicians being politicians; the Government will need people with the skills,” he said.

He said the Government’s decision to allow older Australians many of whom faced dwindling superannuation nest eggs - to continue working or re-enter the workforce without deductions to their pension would result in valuable skills returning to the workforce. He said it was an important development for the IT sector.

Bertram said the budget was “pretty lacklustre” from an IT perspective with only about $770 million of projects flagged, compared to more than $1 billion last year.

CRN Fast50 alum Zaun Bhana, said the additional money in the budget for training was important but he was disappointed that the Government didn’t do enough to alleviate the worsening skills shortage in Western Australia.

“I would have been happier to see more measures to address the labour shortages, especially in WA,” said Bhana, Leap Consulting's operations director.

Guy Cranswick, senior analyst with analyst group IBRS said that budget “lacks a strong character”.

Among his chief concerns was the Government’s decision to redirect funding from the much-criticised $130 million building the education revolution project without detailing where it would be spent.

He said Labor missed the chance to detail the opportunities for the economy from the NBN.

But he applauded its decision to spend $558 million to create 130,000 training places over the next four years, some of which was likely to spill over into the ICT.

And there was good news for small business operators to, including a reduction in PAYG instalments in the next financial year that budget papers showed would lead to a $700 million boost to cash flow for close to three million Australian businesses.

Small businesses would be first to receive the promised 29 percent company tax rate, effective from 2012 to 2013. But this was 1 percent higher than that proposed in return for the Government’s Resources Super Profits Tax that was watered down.

Labor gifted to small businesses instant write-offs for assets bought for less than $5000 and a $5000 immediate reduction for motor vehicles, both effective as of 2012/13.

Thy replaced the Entrepreneurs Tax Offset, which Labor said failed to achieve its objectives while adding costs.