The Council of Small Business Organisations Australia (COSBOA) says today’s consultation paper confirms the Government has not listened to the concerns of hundreds of thousands of genuine small businesses expected to be negatively impacted by the proposed minimum tax on discretionary trusts.
Around 350,000 Australian small businesses operate through discretionary trusts, with Budget papers suggesting around 210,000 small family businesses could face a higher tax burden from 2028.
COSBOA CEO Skye Cappuccio said the consultation paper confirmed the policy would continue to force many genuine small businesses into an impossible position.
“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.”
“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 paper also notes that tax credits to trust beneficiaries won’t cover the Medicare levy. This means family members paid through a trust will effectively pay a minimum tax rate of 32 per cent.”
Ms Cappuccio said the proposal would leave many small business owners paying a higher effective rate of tax than Australians earning the same income as employees.
“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.”
“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.”
Ms Cappuccio said if the Government believed there were integrity issues within the trust system, they should be addressed directly rather than through a broad tax increase on genuine small businesses.
“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.”
She said while Budget papers suggest fewer than 10 per cent of small businesses may be affected, that should not diminish the significance of the proposal.
“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 is also represents hundreds of thousands of genuine businesses and the families behind them. We believe in the contribution they make and that they matter. “
COSBOA welcomed confirmation that primary production income would be excluded from the proposed minimum tax but questioned why the same principle had not been extended to other genuine 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.”
While the consultation paper provides further detail around rollover relief, potential options for the treatment of tax credits and raises questions about the future treatment of corporate beneficiaries’ unpaid present entitlements, Ms Cappuccio said the details around implementation did not alter the fundamental policy.
“COSBOA will work through the detail of questions posed in the consultation, but 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.
“We strongly urge this measure to be reconsidered.”
