Research: Trust Tax Changes Could Come with Up to $13.3 Billion of Costs

Research indicates that the proposed trust tax changes could cost Australian small businesses billions in terms of restructuring and advisory fees. 
Australian small businesses could face costs of between $8 billion and $13.3 billion for restructuring and financial advice under the government’s proposed changes to discretionary trusts, research by Wilson Asset Management and CPA Australia suggests. 

The proposed reforms, which are expected to be rolled out this week would slap a 30 per cent minimum tax on discretionary trusts. The findings have fueled debate over the potential effect on businesses, with supporters of the changes saying they could handle tax minimisation under the current system

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Proposed Tax Could Cause Major Business Costs 
The research estimates that companies could spend billions on restructuring their arrangements and on obtaining financial advice to comply with the proposed rules. 
Wilson Asset Management’s Geoff Wilson queried the extent of the compliance burden anticipated, noting that the Government’s Budget estimates the tax will raise $4.5 billion over five years. 
He said the initial costs for small businesses could be two or three times the revenue expected to be collected from the measure. 
The estimates underscore one of the main sticking points — whether the potential revenue gains from the proposed tax would be worth the price businesses may have to pay to adjust to the changes. 
Hundreds of thousands of small businesses could be hit 
Dale Boccabella, Associate Professor of Taxation Law at the University of New South Wales says there are about 900,000 discretionary trusts in Australia, about 350,000 of which are used to run small businesses. 
The level of trust use means that the proposed reforms could impact a large number of businesses, but the estimated costs will depend on how the final rules apply to individual structures. 
The Coalition is resisting the changes, mostly on the basis of the impact on small businesses. 
There is another perspective from Boccabella who says minimum taxes are used widely around the world and the current system is one that allows for significant minimisation of tax. “If one sector pays the minimum amount of tax, it can mean the burden falls on others,” he said. 

What’s Next for Companies to Watch 
The main issue is the structure of the proposed legislation and the compliance requirements business would have to meet. The final rules will help establish the practical costs for trust users and the potential revenue impact of the reform. 

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