Proposed trust tax changes could cost small family businesses $15k more a year. COSBOA is calling for the govt to reconsider before legislation is introduced.
The federal government has flagged changes to the taxation of trust distributions, with the stated aim of addressing what it describes as the use of trusts to minimise tax.
The specifics of the proposed legislation remain subject to further consultation, which the government has indicated will occur in the coming weeks. COSBOA says it looks forward to engaging constructively in that process but is urging the government to ensure the concerns of genuine small businesses are properly understood before any legislation is introduced.
The peak small business body has been collecting stories from business owners concerned about the impact of the proposed changes through its Fair Go for Small Business campaign. What it is hearing, CEO Skye Cappuccio says, is high alarm among businesses that do not see themselves as the target of the policy but fear they will bear the cost of it anyway.
“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,” Cappuccio said.
Who is actually affected
The public debate around trust taxation has largely focused on wealthy investors and high-income earners using trusts to distribute income to lower-earning family members and reduce overall tax. COSBOA says that framing is missing a much larger group of businesses for whom a family trust is simply the legal structure through which an operating business runs.
“These are small businesses using trusts for legitimate commercial reasons,” Cappuccio said. “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.”
For these businesses, the trust structure was typically established to provide a practical framework for managing the business, protecting assets, planning for succession and ensuring business continuity. Many have operated under the same structure for decades, making decisions about reinvestment, staffing and equipment based on the tax settings that applied when those structures were created.
Cappuccio pushed back directly on the characterisation of trust users as wealthy tax minimisers. “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.”
The real cost in practice
COSBOA shared the experience of one small business, a husband-and-wife team who both work full time in the business and rely on trust distributions of around $200,000 between them each year rather than drawing a wage. They currently pay approximately $45,000 in tax annually.
Based on their own estimated calculations of the proposed changes, their annual tax bill could increase by around $15,000, taking their total liability to approximately $60,000 per year. Over five years, that amounts to around $75,000 in additional tax that would otherwise have been available for equipment purchases, productivity improvements and business growth.
The couple described decades of building the business, taking commercial risks and reinvesting profits rather than paying themselves more. “They do not see themselves as wealthy investors but as small business owners focused on supporting their family and the people they employ,” COSBOA noted.
Their concern, shared by many businesses in similar positions, is that the proposed changes effectively penalise a business structure rather than a behaviour. The underlying commercial activity is the same. The tax outcome would be materially different.
What COSBOA is asking for
COSBOA is urging the government to reconsider the proposed trust tax measures before legislation is introduced and to work with the small business sector to ensure any reforms do not penalise businesses using trust structures for legitimate commercial reasons.
Cappuccio framed the ask in terms of the broader economic signals the policy sends. “Small business owners spend years prioritising the needs of their business ahead of their own financial circumstances. 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,” she said.
“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.”
The government has indicated further consultation on trust taxation will occur in the coming weeks. COSBOA says it is critical that the genuine impact on small family businesses is properly understood and considered in that process before any legislation moves forward.
For small business owners operating through a trust structure who are concerned about the proposed changes, COSBOA is collecting stories through its Fair Go for Small Business campaign. Business owners should also speak with a registered tax adviser about how the proposed changes may affect their specific situation, noting that the legislation has not yet been finalised.
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