Trust tax consultation must fix the stamp duty gap

• Federal trust tax reforms risk becoming a “postcode lottery” unless stamp duty costs are addressed
• CPA Australia is urging federal and state governments to close the stamp duty gap before the legislation is finished
• Proposed structure could cost one business thousands and another nothing.

The Federal Government’s proposed 30 per cent minimum tax on discretionary trusts will fail its own fairness test unless Canberra works with the states to remove stamp duty barriers for small businesses restructuring in good faith, CPA Australia says.

Unlike recent capital gains tax reforms, the Government is consulting on the detail of this measure before legislation is introduced, providing an opportunity to resolve important design issues.

However, the proposal leaves a major question unresolved: the impact of state and territory stamp duty on business restructures. Until this gap is addressed, businesses could still face significant costs despite receiving federal tax relief.

The proposed measure will apply to discretionary trusts from 1 July 2028, with Commonwealth rollover relief available for eligible businesses that choose to move out of a discretionary trust into a company, fixed trust or individual structure.

CPA Australia Tax Lead Jenny Wong said the consultation was an important step but warned the current approach risks shifting significant restructuring costs onto small businesses.

“Discretionary trusts are the default starting point for many small businesses in Australia. They are not automatically sophisticated tax plays,” Ms Wong said.

“For most small businesses, a discretionary trust isn’t some elaborate tax structure – it’s the first thing they set up. When you’re starting out, you don’t know what your profits will look like from one year to the next, or what risks you’re taking on.

“A trust gives many family businesses flexibility to manage uncertainty and asset protection to manage risk, without the cost and rigidity of a company,” Ms Wong said.

CPA Australia said moving from one business structure to another is rarely simple. Businesses may need legal and tax advice, amended employment agreements, leases, supplier contracts and finance arrangements, all of which can be costly and time-consuming.

While proposed Commonwealth rollover relief may remove federal income tax and capital gains tax consequences, state and territory transfer duty remains governed by separate laws and is not addressed in the consultation paper.

“This consultation paper runs to 17 pages and includes 17 discussion questions but does not mention state stamp duty once. Until that changes, the Commonwealth’s rollover relief only solves part of the bill small business is being asked to pay,” Ms Wong said.

“Right now, the same restructure can cost one business nothing and another business tens of thousands of dollars, purely because of the state they are in. That is not tax reform – it’s a postcode lottery.”

CPA Australia is calling on the Commonwealth to coordinate with state and territory governments through the Council on Federal Financial Relations or National Cabinet before legislation is finalised.

“Small businesses restructuring in good faith should not be given relief with one hand by Canberra and handed a stamp duty bill with the other by their state government,” Ms Wong said.

CPA Australia said the reform timetable creates further uncertainty. Business owners know the 30 per cent minimum tax is proposed to commence from 1 July 2028, and that a restructuring window is expected to open from mid-2027, but the final design is still not finalised. 

“Businesses are being asked to plan for decisions that could cost tens of thousands of dollars either way, but the rules do not exist yet,” Ms Wong said.

“CPA Australia wants this reform to be workable – getting the detail right now is what will allow business owners to plan, rather than guess.”

Ms Wong said the design also risks hitting smaller and regional businesses hardest.

“Larger family businesses have often already moved into company structures, where the 25 per cent corporate tax rate is more attractive,” Ms Wong said.

“What typically remains in discretionary trusts are smaller, single-family businesses that have never had a reason to change structure. These are exactly the businesses least likely to have the advisory budgets, time and capacity to restructure quickly.”

CPA Australia said regional retail businesses, trades, professional practices and farms are among those most likely to operate through trust structures because that is best for their business, rather than being aggressive tax planning.

“Businesses with the resources to obtain advice and restructure will generally find a path through this,” Ms Wong said.

“The businesses most exposed are smaller operators without significant advisory budgets, often with trust structures built up over many years. Regional businesses are likely to carry a disproportionate share of that risk.”

Ms Wong also said “This is not a niche change affecting a handful of high wealth taxpayers. It has the potential to impact hundreds of thousands of hardworking small business owners and their families. Even where businesses ultimately decide not to restructure, those operating through discretionary trusts will almost certainly need professional advice to assess their position and respond appropriately.”

CPA Australia also raised concern about new personal exposure for directors of corporate trustees. The consultation paper proposes making directors of corporate trustees jointly and severally liable for the minimum tax, alongside new ATO collection notice powers.

“For small, family-run businesses using a corporate trustee – a common and unremarkable structure – this is a meaningful new personal risk. That deserves closer public scrutiny before the design is locked in,” Ms Wong said.

CPA Australia also said the proposed rollover appears to require all, or essentially all, of a trust’s assets to move into a new structure at once, rather than allowing a partial restructure.

“An all-or-nothing asset transfer raises the stakes considerably. Combined with the unresolved state duty issue, it could make restructuring too risky or too costly for the very businesses the transition rules are meant to help,” Ms Wong said.

Ms Wong said there were constructive elements in the consultation paper, including the proposed treatment of Family Trust Distributions Tax for genuine restructures and a more generous rollover than the small business template on which it is based.

“There are positive aspects of the consultation paper,” Ms Wong said.

“Family Trust Distributions Tax has been switched off for genuine restructures, and the rollover on offer is more generous than the small business template it is based on. Treasury has clearly listened on some real technical concerns.

“The state duty gap is however the piece that is still missing.”

CPA Australia is not opposing the policy objective of aligning tax outcomes between trust-derived income and wage income. Its focus is on ensuring the design is workable, the transition is fair, and businesses restructuring in good faith are not penalised for trying to do the right thing.

“Good tax reform should help Australian small businesses compete and invest, not divert their attention and capital into avoidable restructuring costs,” Ms Wong said.

“As designed, this measure risks pulling hundreds of thousands of small businesses into complex restructuring decisions that larger businesses, largely outside the scope of the measure, simply will not have to wear.”

Bendel response adds to uncertainty

CPA Australia also noted the consultation paper proposes a legislative response to the ATO’s loss in the High Court’s Bendel case, adding another layer of uncertainty for small businesses and advisers.

“Small businesses and their advisers are now being asked to plan around three unsettled pieces of law at once – the minimum tax, the rollover relief and the treatment of unpaid entitlements to a bucket company,” Ms Wong said.

“Every one of those issues affects the same restructuring decision, and none of them has a settled design yet. That is why the final rules need to be coordinated, practical and clear before businesses are expected to act.”

Media contact

Adrienne Biscontin
External Affairs Adviser
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0429 009 691