Industry body calls for targeted reform over blanket minimum tax on discretionary trusts
The Council of Small Business Organisations Australia (COSBOA) has submitted to the Federal Government's consultation on the proposed 30% minimum tax on discretionary trusts, arguing the measure is "unfair in its bluntness" and would impose billions of dollars in costs on small businesses.
Treasury estimates approximately 350,000 Australian small businesses operate through discretionary trusts, with around 210,000 expected to face a higher tax burden should the proposal proceed.
COSBOA calculates that restructuring costs of between $15,000 and $50,000 per business could result in a collective burden of $3 billion to $10 billion across affected businesses.
"This proposal is grossly unfair," said Skye Cappuccio (pictured right), chief executive of COSBOA. "It imposes a financial penalty on arrangements that have been legal for decades and are commonly used by small businesses for legitimate commercial purposes, including asset protection, succession planning and business continuity."
The trade body also contends the proposal does not reflect the financial realities of many small family-run businesses. The government's consultation paper suggests the measure would bring tax on trust income into closer alignment with tax paid by employees, but COSBOA disputes the logic.
"Many family members working in small businesses and paid predominantly through trust distributions do not, and may never, earn the more than $200,000 annual salary that aligns with an effective income tax rate of 30%," Cappuccio said.
"Small businesses support a fair and robust tax system, but integrity measures should be targeted and proportionate. They should focus on the behaviour of concern, not impose additional costs on family businesses using longstanding and lawful business structures."
COSBOA has called on Treasury to release the modelling underpinning the proposal, including any residual integrity gap after existing tax rules are applied, the proportion of trusts engaged in the targeted behaviour, and the compliance and restructuring costs the measure would impose.
If further reform is required, COSBOA argues it should strengthen existing integrity measures rather than introduce a broad minimum tax. Where implementation proceeds, the group is urging the government to grandfather small businesses with aggregated turnover below $10 million. It has also proposed an annual distribution-pattern test as a lower-cost alternative to address integrity concerns without forcing widespread restructuring.
"We support maintaining the integrity of Australia's tax system, but there are better ways to achieve that than imposing a blanket tax on legal business structures that will threaten the viability of valued small businesses," Cappuccio said.
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