Most revenue from the government’s proposed new tax on family trusts will come from trusts that do not operate businesses, Treasury officials have told a Senate inquiry.
The Senate Economics Legislation Committee is examining the Treasury Laws Amendment (Tax Reform No. 3) Bill 2026, which would impose a 30 percent minimum tax rate on the net income of discretionary trusts from July 2028.
Emma Gabrielsen, an assistant secretary at the Treasury, told the inquiry that around 40 percent of the estimated revenue would come from trusts operating businesses. The remainder would come from trusts that do not operate businesses, such as those holding investments.
Of the revenue expected from business trusts, about 40 percent is projected to come from businesses with annual net income of less than $1 million (US$690,000).
Liberal Senator Jane Hume calculated the amount at about $720 million a year and asked whether Treasury had considered exempting small businesses from the tax.
Treasury Chief Adviser Neena Pai said the number of trusts had grown much faster than the number of companies, and that the tax was intended to discourage businesses from operating through trusts.
“One of the purposes here is to level the playing field … [as] the the vast majority, over 85 percent of businesses, do not have these structures and do not have these opportunities to stream and defer their income through these types of structures,” she said.
Treasury Says Double Taxation Is ‘Deliberate’
Many witnesses complained that income distributed from a trust to a family company could be taxed twice. The trust would first pay the 30 percent minimum tax, but the company would not receive a credit for that payment and would still have to pay company tax on the distribution.
Pai said the Bill’s approach was “deliberate,” noting that pairing a trust with a family company “provides the most opportunity” for families to distribute income among members and defer tax payments.
“It is designed explicitly to discourage those distributions,” she said.
However, the chief adviser said her department did not expect many of those income distribution to occur given how they were being treated.
There have also been concerns about the costs business trusts would face if they decided to restructure in response to the Bill.
Treasury estimated that trusts undergoing restructuring would incur an average of $11,000 in advisory and other costs.
Pai said that was at the top of the range given by accounting bodies, and that CPA Australia had earlier estimated $10,000 to $24,000.
“I accept that we are in the low range, but we are still within the range,” she said. “I have also said we estimate that to be an average cost, and it could be higher for some businesses.”
Concerns Over Rules Yet to Be Determined
The Bill leaves 12 matters to be determined through future legislative instruments, including which additional types of trusts may be excluded from the tax.
Accountants have told the committee they cannot advise clients until they see them.
Asked by Greens Senator Nick McKim when the legislative instruments would be released, Pai said that was “a matter for government.”
“We are working as quickly as we can to provide as much certainty to people,” she said. “I’m not able to give you a definitive time frame.”
Hume told officials that individual small business owners accounted for about 140 of the roughly 212 submissions to the inquiry, with most expressing anxiety about the proposed changes.
Asked whether officials had spoken with any of the small businesses that made submissions, Pai said she would have to take the question on notice.
Hume also asked if Treasury had warned the Treasurer about the risks of the tax, such as its effect on house building, business failures or stamp duty.
Pai said she could not discuss the advice provided to Cabinet but said Treasury always tried to “raise as many of the risks and sensitivities as we can.”
