Government Softens Trust Tax Reforms After Small Business Pressure

Government Softens Trust Tax Reforms After Small Business Pressure

There's encouraging news for members operating through discretionary trusts. Treasury has released draft legislation for the new 30% baseline tax on discretionary trusts announced in the Federal Budget — and it now includes a significant carve-out. Existing trusts that elect to fix their distribution patterns will not be subject to the new minimum tax, meaning many small and family businesses can keep their established trust structure without a costly restructure. 

This outcome reflects sustained advocacy across the small business sector. The election pathway mirrors a fallback option put to Government by the Council of Small Business Organisations Australia (COSBOA), which had opposed the tax entirely and fought hard for protections for existing small businesses. ALNA added its voice to COSBOA’s directly, writing to Treasurer Jim Chalmers warning the reforms risked capturing legitimate operating businesses - with effective tax rates approaching 60%, and raising members' concerns in meetings with federal MPs, and Senators in Canberra. 

As COSBOA CEO Skye Cappuccio notes, this is a better outcome than originally announced - but the policy remains flawed. Fixing distributions sacrifices flexibility that matters for succession planning, and trusts that revoke their election face taxation at the highest marginal rate plus the Medicare levy, which COSBOA rightly calls unnecessarily punitive. 

Consultation closes 18 September, and ALNA will continue working alongside COSBOA on the detail. If these changes affect your business, please email your feedback to policy@alna.net.au.