Peak body says ‘very little attention’ given to Budget impact on hundreds of thousands of Aussie small businesses – including mortgage brokerages
Hundreds of thousands of family enterprises using discretionary trust structures face thousands of dollars more in tax each year under new Federal Budget measures, the Council of Small Business Organisations Australia (COSBOA) has warned.
The peak industry body says the debate around the Albanese government's 30% minimum tax on discretionary trusts – announced as part of the May Federal Budget – has overlooked genuine small businesses – including many mortgage brokerages – that could be hardest hit.
"There has been very little attention on the 350,000 to 400,000 small businesses operating through trust structures, many of whom now expect a significant hike in their tax bill and a direct impact on their business and their livelihood," COSBOA chief executive Skye Cappuccio (pictured) said.
What the Budget measure does
From 1 July 2028, discretionary trusts will be subject to a minimum 30% tax on trust income at the trustee level. Individual beneficiaries will receive a non-refundable tax credit for the tax already paid by the trustee. Beneficiaries on tax rates above 30% will pay additional tax, while those below 30% may lose excess credits. No grandfathering relief will apply, meaning existing discretionary trust structures will also be captured from the commencement date.
Labor's stated objective is to tax income earned through a discretionary trust at the same 30% rate that mid-band salary earners pay on income, thereby improving "fairness and sustainability of the tax system”.
The measures intend to address income splitting, where discretionary trusts split income among beneficiaries who are subject to a lower income tax rate, thereby reducing overall tax on the income. They are expected to increase tax receipts by $4.5 billion over the next five years.
There are currently over 900,000 family trusts in Australia.
A Fair Go for Small Businesses
COSBOA says the policy has been characterised as targeting wealthy investors, but the reality on the ground is more complex. Many businesses use trusts for succession planning, asset protection and business continuity – not income splitting.
Cappuccio described the kinds of operators COSBOA is hearing from through its Fair Go for Small Business campaign. "These are small businesses using trusts for legitimate commercial reasons. Most have annual turnover below $2 million and include trades, retailers, hospitality venues, professional services firms and family-run enterprises in communities right across Australia," she said.
The Mortgage and Finance Association of Australia (MFAA) has also thrown its weight behind the Fair Go campaign and is urging brokers to share their concerns.
MFAA chief executive Anja Pannek said: "Brokers are small business owners who build their businesses over years, often decades, working with their clients, investing in their teams and their communities. This campaign is an important opportunity for our members to share their experiences and ensure their voice is part of this conversation.
"For many brokers, the eventual sale of their business is a central part of their retirement planning. They have invested years building something of real value and it is important that policymakers understand what these proposals could mean for that planning."
COSBOA described a husband-and-wife team who both work full time in their business. They do not pay themselves a wage but rely on trust distributions of around $200,000 per year between them, currently attracting a combined tax bill of approximately $45,000. Based on estimates, the proposed changes would increase that liability by around $15,000 – taking their total annual tax to approximately $60,000. Over five years, that represents around $75,000 in additional tax that could otherwise be directed toward equipment, staff and growth.
"Small business owners spend years prioritising the needs of their business ahead of their own financial circumstances," Cappuccio said. "Rather than paying themselves more, they often leave money in the business to purchase equipment, manage cash flow, employ staff and prepare for future challenges and opportunities."
SMEs urged to speak up
COSBOA is pressing for the concerns of small businesses to be properly heard before legislation is introduced. It is urging the government to reconsider the proposed measures and work with SMEs to ensure they are not unfairly penalised.
"Many small business owners operate their business through a family trust because it is the structure that makes the most sense for their business. These are not businesses using aggressive tax avoidance strategies," Cappuccio said.
"We are hearing from small, family businesses that expect to face a higher tax bill and a higher tax rate than if they had set up their business through a different structure. This adds pressure when many are already dealing with higher costs of doing business and lower profit margins."
The Australian Taxation Office has confirmed a time-limited three-year restructure rollover to facilitate the transfer of assets out of discretionary trusts to entities that are not discretionary trusts.
"If Australia wants stronger productivity, stronger business investment and more jobs, we need policy settings that encourage people to take risks, build businesses and reinvest in growth," Cappuccio said.
