A new government consultation paper on trust tax changes has done little to ease concerns. COSBOA says 210,000 small family businesses could still face a higher tax burden from 2028.
When the government released its consultation paper on proposed changes to discretionary trust taxation, small business groups were hoping for meaningful relief. According to the Council of Small Business Organisations Australia, what they got instead was confirmation that the core policy remains firmly in place.
Around 350,000 Australian small businesses operate through discretionary trusts. Budget papers suggest around 210,000 small family businesses could face a higher tax burden from 2028 under the proposed minimum 30 per cent tax rate on taxable income of trusts.
COSBOA CEO Skye Cappuccio said the paper made clear the government had not responded to the concerns raised by small business operators. “The consultation paper shows the Government hasn’t listened to the concerns of hundreds of thousands of genuine small businesses expected to be negatively impacted by the introduction of a minimum 30 per cent tax rate on taxable income of trusts.”
Cappuccio said the detail around rollover relief fell well short of what small businesses needed. “Many small businesses will face an impossible choice between a higher tax burden or a costly restructure. The consultation paper confirms that rollover relief will not cover accounting and legal costs necessary to restructure or state-based stamp duty.”
The 32% problem
One of the sharpest concerns to emerge from the consultation paper involves the Medicare levy. COSBOA notes the paper confirms that tax credits to trust beneficiaries will not cover the Medicare levy, meaning family members paid through a trust will effectively face a minimum tax rate of 32 per cent.
Cappuccio said that figure placed small business owners at a disadvantage compared to employees on the same income. “Many small business owners will now effectively be taxed at a higher rate than if they were employed. To have an effective tax rate of 32% as an employee you need to be making above $200,000 a year. This is well above what many small business owners pay themselves. This sends a clear signal about how Australia values those prepared to take the financial and legal risks associated with starting, investing in and growing a small business.”
Cappuccio was direct about the broader economic consequences. “Taxing small businesses more doesn’t make for a more equitable tax system; it just makes a less productive economy. It makes small business ownership far less attractive; at the exact time we need Australians to be creating jobs for the economy.”
Who is still excluded
The consultation paper confirmed that primary production income would be excluded from the proposed minimum tax, a move COSBOA welcomed. However, Cappuccio questioned why the same principle had not been extended to other small family businesses. “It’s good that the consultation paper confirms primary production income is excluded from the new tax treatment, but small business is baffled why this doesn’t extend to the tens of thousands of small family builders helping build new homes, or the local family restaurant turning Australian produce into a great meal and a night out with friends.”
On the question of scale, Cappuccio pushed back on any suggestion that affecting fewer than 10 per cent of small businesses made the proposal less significant. “The Budget papers suggest around 210,000 small family businesses may have a higher tax burden from 2028. That may be less than 10 per cent of small businesses, but it also represents hundreds of thousands of genuine businesses and the families behind them.”
What COSBOA is calling for
COSBOA says it will engage with the detail of the consultation paper but made clear that the implementation questions raised do not change the fundamental problem with the policy itself. “It’s not the detail here that makes the difference. The headline changes are the ones that will hit hundreds of thousands of small businesses,” Cappuccio said.
If the government’s concern is integrity within the trust system, Cappuccio said the approach should be targeted rather than broad. “If the Government believes the current trust system has inappropriate loopholes not addressed by current regulation, they should directly address these, not ramp up taxes on genuine small family businesses.”
COSBOA has called on the government to reconsider the measure entirely.
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