Five of Australia’s peak business groups have urged senators not to pass the proposed discretionary trust tax changes in their current form. They warned the Bill would hit hundreds of thousands of small family businesses, including retailers.
In an open letter sent to all senators, the Australian Chamber of Commerce and Industry (ACCI), the Council of Small Business Organisations Australia (COSBOA), the Housing Industry Association, Master Builders Australia and the Property Council of Australia called on the Senate to recognise the impact of the legislation before it proceeds.
The letter was signed by ACCI CEO Andrew McKellar, COSBOA CEO Skye Cappuccio, HIA managing director Jocelyn Martin, Master Builders Australia CEO Denita Wawn and Property Council CEO Mike Zorbas.
The intervention follows the Senate Economics Legislation Committee’s inquiry into the proposed changes. Senators are expected to vote on the legislation in the final sitting weeks of the year.
Around 350,000 small family businesses operate through discretionary trusts, the groups noted. These include retailers, hospitality operators, builders, tradespeople and small developers. During the senate committee hearings, the Australian Taxation Office confirmed that around 99 per cent of discretionary trusts reporting business income in 2023–24 were classified as micro or small businesses.
The groups argued that trusts are widely misunderstood as a tool for the wealthy. They noted that family businesses have used these lawful structures for decades to manage risk, support succession planning and deal with unpredictable income.
Under the Bill, the groups reported, affected businesses would face three options. Those that keep their current structure would pay a 30 per cent minimum tax from the first dollar. According to the letter, this means many small business owners earning less than $100,000 a year would pay a higher tax rate than employees earning $228,000.
The second option is to elect into a fixed-distribution regime. The groups warned this removes the flexibility families rely on, and any change in distributions, whether by mistake or to exit for legitimate reasons, could see a full year of income taxed at 47 per cent.
The third option is to restructure into a company or fixed trust. The groups estimated this could cost individual businesses tens of thousands of dollars and cost the sector billions. They added that the paperwork burden would be heavy and that some states and territories would charge stamp duty on transferred assets.
“For small businesses and family builders, none of these is a real choice,” the letter stated.
The groups also pointed to wider pressure on small businesses. They cited the recently introduced capital gains tax penalty, rising interest rates, high fuel and energy prices, and a weakening economy.
The letter also raised housing supply concerns. It cited a recent survey in which 60 per cent of small and medium residential and commercial developers expected the policy to affect the timing or viability of their projects. Of those, 37 per cent said one or more projects would be cancelled altogether.
The five organisations stated that they support integrity in the tax system. They said they are willing to work with the Government on a more targeted and proportionate approach, and asked Senators to meet with industry representatives before the legislation proceeds.