The Council of Small Business Organisations Australia is warning that proposed changes to how trusts are taxed could hit hundreds of thousands of small businesses, forcing them to choose between higher tax bills or expensive restructuring. COSBOA says the risks include significant costs, more red tape, and uncertainty — and that most of the public debate so far has focused on individuals, not the businesses themselves.
Around 350,000 small businesses in Australia operate through trust structures, according to COSBOA. Most have annual turnover below $2 million. They include trades, retailers, hospitality venues, professional services firms, and family-run operations that have been investing in their businesses and employing people for years.
Small businesses face a difficult choice
COSBOA CEO Skye Cappuccio said many small businesses are only now realizing what the proposals could mean. “They will either have to pay significantly more tax each year or undertake an expensive and complex business restructure,” she said. For genuine small businesses, she added, this is no longer simply a tax discussion — it also involves advisory costs, red tape, productivity, and confidence.
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Eddie Griffith, Chair of the Affiliation for Business Resilience & Turnaround, said the changes are likely to trigger a surge in business restructures. That would put significant pressure on an already stretched small-business advisory sector. Restructuring costs, he said, are highly variable and difficult to predict. Based on experience, they can range from $15,000 to $50,000 depending on business size, complexity and industry.
Griffith listed the kinds of issues restructuring can involve: changing the legal structure of a business, obtaining accounting and legal advice, updating employment arrangements, and addressing potential stamp duty implications.
The current proposal lands at a time when many small firms are already dealing with rising costs and economic uncertainty.
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A real-world example: more than double the tax
COSBOA cited a husband-and-wife team who contacted its Fair Go for Small Business campaign. The couple currently receives trust distributions totaling around $113,000 between them and no other income. Under the proposed changes, their combined annual tax bill would increase from approximately $16,895 to around $36,160 — an additional $19,265 each year, more than doubling their current liability. They said the extra burden would significantly reduce the money they have to reinvest in growing their business while also putting pressure on household finances.
Cappuccio said that if Australia wants stronger productivity, greater business investment, and more jobs, policymakers need to carefully consider whether forcing small businesses to choose between an additional tax burden or a costly restructure is helping or hindering those objectives. She urged them to fully consider the practical consequences before going ahead. Small business owners, she stressed, are simply asking for a fair go. “If there are specific integrity concerns within the trust system, Government should address those concerns directly, rather than creating significant costs, complexity and uncertainty for hundreds of thousands of genuine small businesses that are already doing the right thing,” she said.
COSBOA is calling on the government to consult further with the small business sector before legislation is introduced, ensure any reforms do not create unnecessary compliance burdens or force costly restructures, and target any integrity concerns directly rather than applying a blunt measure to genuine small businesses. The organization is pleased the government has indicated further consultation on trust taxation will occur in the coming weeks and looks forward to engaging constructively in that process.