The Albanese government’s proposed changes to trust taxation could impose significant advisory costs on businesses and families, with estimates reaching as high as A$2.8 billion, according to CPA Australia’s submission to Treasury. The reforms, announced in the May budget by Treasurer Jim Chalmers, introduce a 30 percent minimum tax on capital gains and distributions from discretionary trusts, aiming to raise A$44 billion over nine years.
Treasury’s draft legislation includes an option for trusts to move into a fixed tax regime, intended to simplify compliance. However, CPA Australia warns that the consultation process, which closed on Friday, underestimated the broader impact. While the government’s analysis focused on approximately 350,000 small businesses, CPA Australia notes that about 850,000 discretionary trusts file tax returns annually. Each trustee must decide whether to elect into the regime, with non-decision treated as automatic election, leading to considerable administrative burdens.
Jenny Wong, CPA Australia’s tax lead, highlighted that the projected A$2 billion to A$2.8 billion in costs relates to professional advice alone and precedes any expenses involved in restructuring trusts. She emphasized that these costs stem mainly from deciphering the implications of the reforms rather than the tax payments themselves.
Beyond advisory fees, the submission raises concerns about potential stamp duty liabilities on trust restructures and asset transfers. Although Treasury’s explanatory materials indicate that duty is “not expected,” CPA Australia points out the absence of legislative guarantees and no formal agreement from state or territory governments. Queensland has signaled a possible application of transfer duty on discretionary trusts opting into the fixed regime, with New South Wales also not ruling out similar measures. CPA Australia recommended the government allow immediate tax deductibility for any restructuring expenses incurred.
The trust tax changes remain contentious, with critics warning of adverse behavioural responses. Geoff Wilson, chairman of Wilson Asset Management and an outspoken critic of the capital gains tax reforms, plans to submit comments acknowledging that Treasury has adopted several of his recommendations in part or whole. However, he insists the measure still risks distorting economic behaviour due to what he describes as “double taxing” of income.
Wilson argues that introducing a minimum tax credit account to recognize payments made under the 30 percent floor through the tax chain would preserve the government’s revenue intent while preventing double taxation. He warns that without such mechanisms, taxpayers may restructure, delay transactions, or reduce investment activity, potentially shrinking the economy and diminishing projected revenues.
Additionally, Pitcher Partners tax partner Alexis Kokkinos has proposed an alternative model. His submission suggests that trusts should pay the minimum 30 percent tax on income distributed to corporate beneficiaries, with a corresponding non-refundable credit flowing through to corporations and ultimately shareholders. Kokkinos contends this approach would maintain the intended tax floor without undermining its effectiveness.
As the government advances these trust reform measures, differing views from accounting bodies and industry participants underscore the complexities involved in balancing revenue goals with economic and compliance impacts.