CPA Australia urges Government to reconsider disproportionate trust tax on small and family businesses

• Proposed changes are disproportionate and must be reconsidered
• Restructure costs could reach up to $23,000 a business, up to $2.5bn nationally
• Better targeted reform needed, not blanket measures

CPA Australia is urging the Federal Government to reconsider its proposed minimum tax on discretionary trusts in today’s submission, warning the measure is disproportionate and will impose significant and unnecessary costs on the small and family businesses that use trusts for legitimate reasons.

CPA Australia Tax Lead Jenny Wong said discretionary trusts are widely used by Australian small and family businesses for legitimate reasons, like asset protection, succession planning and operational flexibility. 

"People hear the word 'trust' and imagine sophisticated tax planning, but for many small businesses a trust is simply the structure they've used for years to run their business and protect family assets," Ms Wong said.

"Many families have set up these structures in good faith, based on existing laws, which they’ve used for decades. 

“Members tell us their clients now feel the ground has shifted beneath them – a feeling made worse by the capital gains tax and negative gearing changes announced at the same time. Changing the rules on arrangements made in good faith erodes the certainty a self-assessment tax system.

"The challenge with the current proposal is that it assumes restructuring is a straightforward solution, yet CPA members tell us the reality is very different.

"More fundamentally, this comes down to proportionality. The tax system should be fair, but the response must match the size of the problem. This measure reaches hundreds of thousands of ordinary family businesses to deal with a concern a far more targeted rule could address directly.

“We are asking the Government to reconsider the measure, not simply to make it easier to comply with," Ms Wong said.

Ms Wong said restructuring out of a discretionary trust is a complex, multi-disciplinary process that often requires accountants, lawyers, valuers, financiers and state revenue authorities to work together.

"It is not a form-filling exercise. Businesses may need to establish new entities, transfer assets, update licences, renegotiate finance arrangements, move employees, amend contracts and review tax consequences across multiple areas of law,” Ms Wong said.

Ms Wong added that the cost  of engaging accountants and lawyers to help with the restructure is only part of the equation. 

"In many cases, the greater burden is the significant time and effort required from business owners themselves. Restructures can disrupt banking, finance and supplier arrangements, and the original trust often cannot be wound up immediately, leaving businesses to manage duplicate compliance obligations for a period. The government needs to fully understand the practical, financial and business impacts of a restructure before treating it as a straightforward solution.

"For many small businesses, professional costs alone could range from around $10,000 to more than $23,000 before any state-based stamp duty is considered. The cost of restructuring could exceed the tax the Government is trying to collect.

"One CPA member recently completed a restructure from a trust to a company. It cost around $22,000 and more than 60 hours of the owner’s own time, which the client described as traumatic – and that was the favourable case, with no property changing hands. A related entity that holds land in Victoria could face a significant study duty bill," Ms Wong said.

CPA Australia estimates that if around half of the potentially affected businesses – roughly 105,000 – restructured within the three-year window, the national cost of professional advice alone would be at least $1 to $2.5 billion – even before any state stamp duty is added.

The submission from CPA Australia shows that state and territory stamp duty may become the single biggest obstacle facing businesses that seek to restructure.

"Two businesses with identical circumstances could face vastly different outcomes simply because they operate in different states. In some cases, the stamp duty bill alone could be larger than the tax businesses are trying to avoid," Ms Wong said.

“For many small businesses, this isn't a tax reform issue. It's a restructuring cost issue.

"This is a problem only the states can fix. The Commonwealth’s rollover relief can only reduce the income tax and capital gains cost of restructuring, not state stamp duty. We are asking the Government to resolve this with the states/territories, and if that cannot be achieved, to match the relief itself by making the duty and restructuring costs deductible," Ms Wong said.

CPA Australia is also concerned that the proposed three-year transition period significantly overestimates the capacity of the profession to undertake hundreds of thousands of complex restructures, while still meeting existing compliance obligations.

"Restructuring a business isn't something that can be done overnight. It requires specialist advice, planning and input from accountants, lawyers, valuers and lenders,” Ms Wong said.

"Many businesses will want changes in place by 30 June, creating a surge in demand for advice at the busiest time of the year. Without practical alternatives, there is a real risk some businesses won't be able to access advice in time or will face drastically higher costs.

Ms Wong added that accountants, tax advisers, lawyers and valuers are already managing significant reform agendas – including Payday Super, anti-money laundering (AML/CTF) obligations and other major tax changes.

"Without practical alternatives, we risk creating a bottleneck where many small businesses cannot access timely advice, face escalating costs or simply decide to pay the tax or close their business because restructuring is not commercially viable," Ms Wong said.

"This reform is also a practical test of the Government’s own productivity and red-tape reduction agenda. 

“A measure that reaches hundreds of thousands of small businesses and adds net compliance burden – or forces costly restructuring without removing the frictions that make it costly – works against the Government’s own productivity objectives. Every design choice should be weighed against that agenda, not only against revenue," Ms Wong said.

In its submission, CPA Australia has responded to the government’s request for alternative approaches with a range of practical alternatives, including a simplified election model that would allow eligible trusts to achieve the policy objective without physically restructuring their business.

"While the Government has already announced some exclusions, it should consider going further to better target the measure. This includes carving out arrangements where there is little or no policy concern, such as trusts with a single beneficiary. A simple election would also let eligible trusts to meet the policy objective without restructuring at all," Ms Wong said.

"For the businesses that ultimately choose not to restructure, the minimum tax should be set at 25 per cent rather than 30 per cent. That recognises they are already carrying the cost and complexity of the new regime, and it eases the pressure to undertake a restructure many businesses simply can’t afford," Ms Wong said.

CPA Australia supports the objective of ensuring the tax system is fair and sustainable, but a measure with this reach must be proportionate to the problem it addresses.

"Reforms must be workable in practice. By that measure, this reform should be reconsidered, rather than simply adjusted. If the cost of restructuring is more than the tax a business would owe, or if advice is not available when it is needed, the transition is not working as intended,” Ms Wong said.

"Our recommendations provide alternative approaches that we argue achieve the policy objective without burdening small businesses with unnecessary cost, complexity and uncertainty," Ms Wong said.

Media contact

Adrienne Biscontin
External Affairs
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0429 009 691