The Council of Small Business Organisations Australia has submitted to a parliamentary inquiry that small businesses with annual turnover below $10 million should be excluded from the federal government's proposed 30% minimum tax on discretionary trusts. The council also called for restructuring costs incurred by affected businesses to be made tax deductible.
Labor flagged the trust tax change in the May budget, citing the number of discretionary trusts it said were undermining the tax system and placing greater burden on wage earners. Assistant Productivity Minister Andrew Leigh said the reform would not take effect until 2028, and that rollover relief was built into the bill for businesses wishing to restructure. Leigh cited Treasury analysis finding that discretionary trust holders pay roughly 4 percentage points less tax compared with salary earners.
Council chief executive Skye Cappuccio said in the submission that the changes penalised business owners for using a legal structure, and that the reform taxed the structure rather than the conduct of concern. Cappuccio argued that genuine family-run small businesses operating through discretionary trusts for asset protection would face materially higher tax bills under the proposed changes.
She said businesses affected by the reform would face three options: accepting a higher tax bill, undertaking a costly restructure, or electing a fixed-distribution beneficiary, and that none of these was workable as the legislation currently stood for many small businesses. The restructuring process could cost some businesses up to $50,000.
Leigh said the reform was about preserving the integrity of the progressive tax system, so that small business owners were subject to the same approach as wage earners such as nurses, teachers and firefighters, who cannot direct their salary to other family members. He said existing anti-avoidance rules already block trust income being directed to private school fees, and those rules remain unchanged by the proposed reforms.
The inquiry heard from representatives of accountant peak bodies, the National Farmers Federation, Housing Industry Australia and Master Builders Australia. The Labor-led committee was due to hand down its recommendations on 13 November.
Small businesses operating through discretionary trusts could face a minimum 30% tax on trust distributions under the proposed reform if it passes. Affected business owners would need to choose between paying a higher tax bill, restructuring their arrangements or electing a fixed-distribution regime under the bill.
Official statements: Treasury
Reporting: SmartCompany
Written by Pick & Scroll News from the reporting and documents linked above.
