The Council of Small Business Organisations Australia (COSBOA), the Commercial & Asset Finance Brokers Association of Australia (CAFBA) and the Mortgage & Finance Association of Australia (MFAA) are warning the Federal Government’s proposed minimum tax on discretionary trusts fails to account for the practical challenges finance brokers could face if they are required to restructure their businesses.
While much of the public discussion has focused on the additional tax burden and cost of restructuring, the three organisations say finance brokers operating through discretionary trusts could also be forced to revisit lender accreditations, aggregator agreements and other contractual and regulatory requirements. For mortgage brokers, this may also include changes to Australian Credit Licence or Credit Representative arrangements before they can continue operating under a new business structure.
The organisations say these additional requirements could create significant cost and delay for broker businesses, while also disrupting access to finance for the small businesses that rely on brokers to secure lending and invest in growth.
COSBOA Chief Executive Officer Skye Cappuccio said the proposed reforms reached well beyond taxation.
“The focus has understandably been on the tax implications, but that’s only part of the story,” Ms Cappuccio said.
“For some regulated small businesses, restructuring could mean unpicking commercial and regulatory arrangements that have taken years to build.
“That is not a simple transition. It risks creating cost, delay and disruption for small businesses already operating in a difficult environment.
“When small businesses are spending their time navigating additional red tape instead of helping other small businesses access finance, it’s a clear sign the practical impacts of these reforms need closer attention.”
CAFBA Chair of Advocacy David Gandolfo OAM said the proposal overlooked how commercial finance broking businesses operate in practice.
“Commercial finance brokers arrange around 72 per cent of Australia’s commercial equipment finance. Any disruption to that accreditation network ultimately affects the small businesses relying on brokers to access the capital they need to purchase equipment, invest and grow,” Mr Gandolfo said.
“For a midsized broking firm, this could mean the cost and disruption of renegotiating up to 50 separate lender accreditation agreements without any assurance that the new agreements will be accepted.
“Assistance will also be needed for business clients to assign or restructure loans, often resulting in significant break costs if loan assignments are impossible (e.g., with commercial chattel mortgages).
“Access to competitive and appropriate finance is the enabler of small to medium business, and these severe disruptions will impact that flow of finance, with significant yet avoidable impacts to the broader economy.”
Mortgage & Finance Association of Australia CEO Anja Pannek said mortgage broking is one of Australia’s most highly regulated small business sectors, with brokers operating within a complex framework of licensing, lender accreditation, aggregator agreements and compliance obligations. Commercial finance brokers may face different regulatory settings, but they too can be affected by contractual and commercial requirements when restructuring their businesses.
“Restructuring a business that operates through a discretionary trust is far more than a legal or accounting exercise,” Ms Pannek said.
“For mortgage brokers, it may require changes to Australian Credit Licence or Credit Representative arrangements, lender accreditations, aggregator agreements, professional indemnity insurance and compliance documentation. Depending on the nature of the business, finance brokers may also need to revisit contractual arrangements with lenders, aggregators and insurers.
“Mortgage and finance brokers help Australians secure more than 80 per cent of new residential home loans and support thousands of small businesses to access finance. Any reforms should minimise unnecessary disruption for these businesses while still achieving the Government’s policy objectives.”
The three organisations are urging the Government to ensure the final design of the proposed reforms properly reflects the regulatory and commercial realities facing finance brokers and other regulated small businesses, alongside the broader restructuring costs already identified by the small business sector.
They say small business trading trusts should be excluded or grandfathered, or at minimum, given practical transition arrangements that avoid unnecessary disruption to licensing, accreditation and access to finance.
