Small Business Groups Demand $10 Million Carve-Out From Trust Tax

Australia's peak small business body wants firms with turnover under $10 million grandfathered out of the federal government's planned 30% minimum tax on trusts. The demand lands in a submission to a two-day inquiry that opens Thursday, with industry groups warning owners could pay thousands of dollars to restructure.

Labor flagged the measure in the May budget. The government justified the change by pointing to the large number of discretionary trusts it says are subverting the tax system, shifting a greater burden onto workers. Businesses counter that trusts serve a legitimate purpose: protecting assets.

The Council of Small Business Organisations Australia (COSBOA) argues the tax hits the wrong target. Chief executive Skye Cappuccio said the changes punish owners for taking legal measures.

"The measure treats a legal structure – one that hundreds of thousands of small businesses use for genuine purposes – as a problem," she said in the submission.

Cappuccio sharpened the point in a second passage. "The measures taxes a legal structure, not the conduct of concern. It will materially increase the tax paid by genuine, family-operated small businesses that use discretionary trusts for asset protection."

What are businesses being asked to choose between?

COSBOA laid out three paths for affected firms, none of them cheap. Businesses would either accept a higher tax bill, carry out a costly restructure, or elect a beneficiary for a fixed-distribution regime.

The peak body didn't sugar-coat the least painful option. "The election may be the least worst of the three options for some small businesses, but as drafted, it is too harsh for many businesses to use," the submission said.

Cappuccio warned that small businesses would face severe penalties if their circumstances changed. She urged the committee to enact the grandfathering carve-out for firms turning over less than $10 million annually.

COSBOA also recommended a second concession: make restructuring costs tax deductible. That would soften the bill for owners who bite the bullet and reorganise their affairs under the new rules.

Who else gets a say?

The inquiry won't hear from COSBOA alone. Representatives from accountant peak bodies will appear, alongside the National Farmers Federation, Housing Industry Australia and Master Builders Australia. The presence of farming and construction groups signals how widely discretionary trusts are used outside metropolitan professional services — family farms and building trades rely on them heavily.

The committee running the inquiry is Labor-led. It will hand down its recommendations on November 13, giving affected businesses roughly a month from the hearings to the verdict on whether the 30% minimum tax survives intact, gets softened, or picks up the $10 million exemption COSBOA wants.

The stakes are concrete for the hundreds of thousands of small businesses Cappuccio cites. Each faces a decision between paying more tax, spending on restructuring, or locking in fixed distributions — and the November 13 report will determine how expensive each option becomes.