Small businesses that run their income through a discretionary trust, a structure common among builders, subcontractors and family-run trade firms, will face compliance costs in the thousands of dollars under a 30 per cent minimum tax on trusts introduced to federal parliament on Wednesday. Assistant Treasurer Daniel Mulino conceded the figure on ABC’s Insiders on Sunday when asked what the change would cost business owners.
The measure was flagged in the May federal budget and is now before parliament, The West Australian reported via AAP. The government argues the sheer number of discretionary trusts has been subverting the tax system and shifting the burden onto wage earners.
Mulino put the scale of it plainly. There are about 800,000 discretionary trusts in Australia, he said, a number that has doubled over the past 25 years. The expected economy-wide cost of the changes is about $50 million.
The bill lands before the tax does
For a business owner, the first hit isn’t the tax rate. It’s the accounting and legal work needed to figure out whether the existing structure still stacks up, and what to do if it doesn’t.
Asked how much that would run to, Mulino wouldn’t give a single number.
“It really depends on the kinds of arrangements that a small business has, it depends on the kind of restructuring pathway they undertake,” he told the program.
“It should be towards (the thousands) than the (tens of thousands).”
He described the overall figure as “(It’s) a reasonable kind of ongoing cost for adjustment across the economy for a tax reform of this magnitude”.
That’s the sentence worth sitting with if you’re the one writing the cheque. A cost the Treasury bench calls reasonable at the national level is still a cost that comes out of one business’s working capital, in the same year as insurance renewals, registration, and whatever the ute needs.
Why the government says trusts had to be dealt with
Mulino’s argument is about who gets access to what.
“At the heart of this reform is the fact that there are a range of options available to some taxpayers in our community that are not available to most, that aren’t available to people who provide their labour,” he said.
On the rate itself, he said: “What we’re setting is a very reasonable minimum tax. The 30 per cent is a level that is really to better align taxation through trust income.”
The top marginal tax rate is 47 per cent. Concerns have been raised that some people could end up paying 60 per cent in tax where they use a trust alongside other companies for business purposes, according to the source report.
Business groups say trusts aren’t a dodge
The proposal has drawn fire from business groups, who argue trusts are used for legitimate reasons, asset protection chief among them.
That argument matters more in construction than in most industries. A trade business carries exposure that a salaried worker doesn’t: defect claims, contract disputes, a head contractor going under mid-job and taking the progress payment with it. Separating the business assets from the family home has been a standard reason small operators sat down with an accountant and set up a trust in the first place.
None of that is settled by the bill as it stands. What the source report makes clear is that the government is pitching the change as an alignment measure, not a crackdown on asset protection, and that business groups aren’t buying the distinction.
What it means if you’re running a trust right now
Nothing has passed. Labor needs either the coalition or the Greens to get the reforms through parliament, and the coalition has come out strongly against the bill and is unlikely to support it even with changes. That’s the single biggest variable for anyone deciding whether to spend money on advice this quarter.
Mulino said there would be a transition period so businesses have time to adjust. The source report doesn’t specify how long that period runs, and the detail will sit in the bill and its explanatory material rather than in a Sunday interview.
If your structure was set up a decade ago and nobody has looked at it since, this is the prompt to get it in front of your accountant before the bill’s fate is decided, not after. A restructure done under deadline pressure costs more than one done with time on the clock, and Mulino’s own answer tied the price tag directly to “the kind of restructuring pathway they undertake”.
What to watch: whether the Greens engage on amendments, since that’s the only remaining path to passage, and what the explanatory material says about the transition window. Trust distribution decisions get made at the end of the financial year, so the timing of any vote will decide whether this is a problem for the 2026-27 books or the ones after.
The Australian Taxation Office (ato.gov.au) publishes current guidance on trust income and distributions, and Treasury (treasury.gov.au) carries the budget papers where the measure was first flagged.
Frequently asked questions
How much will the trust tax change cost a small business?
Assistant Treasurer Daniel Mulino said costs would likely run into the thousands of dollars rather than tens of thousands, depending on the kind of restructuring a business needs to do.
Has the trust tax bill passed parliament?
No. It was introduced to federal parliament on Wednesday and needs support from either the coalition or the Greens to pass. The coalition has come out strongly against it.
Why is the government introducing a minimum tax on trusts?
Mulino says discretionary trusts give some taxpayers options that aren’t available to people who earn a wage, and the 30 per cent minimum rate is meant to better align tax paid through trust income with other income.
Will businesses get time to adjust before the tax applies?
Mulino said there would be a transition period, though the source report doesn’t specify how long it runs. That detail is expected to sit in the bill’s explanatory material.
Sourced from The West Australian, AAP, ABC Insiders. Original article.
