Peak bodies say the government's discretionary trust tax plan overlooks the regulatory and commercial burden on finance brokers
Three industry associations — the Council of Small Business Organisations Australia (COSBOA), the Commercial & Asset Finance Brokers Association of Australia (CAFBA), and the Mortgage & Finance Association of Australia (MFAA) — have warned that proposed minimum taxation on discretionary trusts fails to account for the practical compliance burden finance brokers may face if required to restructure their businesses.
Beyond the tax and restructuring costs that have dominated public discussion, the organisations say brokers operating through discretionary trusts could also need to revisit lender accreditation agreements, aggregator contracts, and other regulatory arrangements. For mortgage brokers, this may extend to changes in Australian Credit Licence or Credit Representative status before operations under a new business structure can lawfully continue.
The groups say these requirements could introduce material costs and delays while also disrupting small business clients' access to finance.
"The focus has understandably been on the tax implications, but that's only part of the story," said Skye Cappuccio (pictured top left), chief executive of the Council of Small Business Organisations Australia. "For some regulated small businesses, restructuring could mean unpicking commercial and regulatory arrangements that have taken years to build.
"That is not a simple transition. It risks creating cost, delay and disruption for small businesses already operating in a difficult environment."
CAFBA highlighted the scale of the potential accreditation problem. "Commercial finance brokers arrange around 72% of Australia's commercial equipment finance," said David Gandolfo (pictured top centre), chair of advocacy at the Commercial & Asset Finance Brokers Association.
"Any disruption to that accreditation network ultimately affects the small businesses relying on brokers to access the capital they need to purchase equipment, invest and grow."
Gandolfo added that a mid-sized broking firm could face the cost and disruption of renegotiating up to 50 separate lender accreditation agreements, with no guarantee the new arrangements would be accepted. Business clients may also require loan assignments or restructures, potentially incurring significant break costs where assignment is not possible.
MFAA chief executive officer Anja Pannek (pictured top right) said the regulatory framework governing mortgage broking was among the most complex facing any small business sector. "Restructuring a business that operates through a discretionary trust is far more than a legal or accounting exercise," she said.
"For mortgage brokers, it may require changes to Australian Credit Licence or Credit Representative arrangements, lender accreditations, aggregator agreements, professional indemnity insurance and compliance documentation." She noted that mortgage and finance brokers facilitate more than 80% of new residential home loans and support thousands of small businesses in accessing finance, adding that reforms should minimise unnecessary disruption while still meeting the government's policy objectives.
The three bodies are calling on the government to exclude or grandfather small business trading trusts from the proposed changes, or at minimum to provide transition arrangements that avoid disruption to licensing, accreditation, and access to finance.
Construction sector also raises concerns
Master Builders Australia has separately submitted to the government that the trust proposals could impose substantial costs on small building businesses, with potential knock-on effects for housing supply and consumer protections such as statutory warranties.
The submission estimates that a small family-owned construction business with taxable income of $400,000 could face a tax increase of up to 70%, one-off restructuring costs of between $82,000 and $175,000, and ongoing annual costs of between $21,000 and $67,500.
"As our submission outlines, changing a building business from one structure to another isn't like changing your mobile phone plan," said Denita Wawn (pictured right), chief executive of Master Builders Australia. "It can involve lawyers, accountants, banks, insurers, licences and contracts, all of which cost money and ultimately make building more expensive at the worst possible time."
Master Builders Australia is recommending that the government consider grandfathering existing structures, introduce a permanent small business carve-out, undertake a formal regulatory impact assessment, and adopt a narrower definition of discretionary trusts.
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