Australia's proposed trust tax changes threaten small businesses

The Australian government’s draft reforms to discretionary trust taxation would impose a minimum 30% tax on the taxable income of trusts, potentially raising the effective tax rate on small‑business owners to about 32% once the Medicare levy is included. The Council of Small Business Organisations Australia (COSBOA) says roughly 350,000 small firms operate through trusts, and the government’s own budget papers project around 210,000 family‑run businesses could face higher tax bills from 2028.

COSBOA CEO Skye Cappuccio warned that “many small businesses are only now realising these proposals could leave them facing a difficult choice” between paying substantially more tax – in some cases doubling a family’s liability – or undertaking costly restructures that can run $15,000‑$50,000. The consultation paper did not expand rollover relief to cover legal and accounting expenses, and it confirmed that tax credits will not offset the Medicare levy.

While primary‑production income is excluded, the group argues the same relief should apply to other small‑family enterprises such as builders and restaurants. COSBOA says the changes could curb investment, job creation and overall productivity in the small‑business sector.