Small businesses fear tax reform fallout

The federal government’s proposed minimum tax on discretionary trusts could impose significant costs on small businesses, financial advisers, and lower-income Australians, according to a submission from the Financial Advice Association (FAAA). The group warned the reforms risk unintended consequences while failing to effectively target tax minimization.

Reforms could force costly restructures

The FAAA, which represents financial advisers, said the changes could push around 350,000 active small businesses to either retain their trust structures or transition to companies—both options carrying legal, tax, and administrative burdens. Many of these businesses rely on trusts for asset protection, succession planning, and family ownership, not just tax benefits.

Sarah Abood, the FAAA’s chief executive, said the association supports efforts to curb inappropriate tax minimization but questioned whether the current proposal strikes the right balance. “The FAAA appreciates the government’s objective to address tax minimisation through income splitting arrangements, however we are concerned about the potential broader consequences of this reform,” she said.

The submission also highlighted concerns about the treatment of corporate beneficiaries, which could result in an effective tax rate exceeding 55%. The FAAA argued this aspect of the reforms should be reconsidered to avoid disproportionate impacts.

Lower-income Australians at risk

The FAAA warned the reforms could hit lower and middle-income beneficiaries hardest, including retirees, students, stay-at-home parents, and those temporarily out of work. These groups may struggle to fully utilize non-refundable tax offsets, leaving them worse off.

To ease the transition, the association recommended extending the proposed three-year relief period to five years, broadening exemptions, and coordinating with state governments to provide stamp duty relief for businesses forced to restructure. It also called for greater flexibility in rollover relief provisions.

For many small business owners, trusts aren’t just a tax tool—they’re a way to manage family assets and plan for the future. The FAAA’s submission suggests the government hasn’t fully accounted for how the reforms might disrupt these arrangements. While the goal of curbing tax avoidance is clear, the path to get there remains contentious.

Abood said the rationale behind the minimum tax approach hasn’t been adequately demonstrated or consulted on. “The reasons for taking the minimum tax on discretionary trusts approach has not been adequately consulted on or demonstrated to be appropriate,” she said.

The FAAA remains open to alternative reforms that better target tax avoidance while preserving the legitimate commercial and succession planning benefits of discretionary trusts. But for now, the proposal’s fate hinges on whether the government will adjust its approach—or push forward despite the warnings.