Small builders could face extra costs in having to review how they run their businesses under a proposed tax on discretionary, or family trusts, with the building industry and Federal Government at odds over the impact.
The Housing Industry Association (HIA) has warned the proposed 30 percent minimum tax on discretionary trusts could leave builders spending time and money on professional advice and business changes.
The Government said fewer than one in 10 active small businesses would be affected in any given year, and businesses using trusts would have options to reduce costs or qualify for an exemption.
The legislation, introduced into Federal Parliament, proposes to apply the minimum tax from July 1, 2028.
Discretionary trusts, often called family trusts, allow trustees to decide how income is distributed among beneficiaries.
HIA managing director Jocelyn Martin said around three in five of the association’s members operated through a family trust. She said the structures helped builders manage risk, protect assets and plan for succession.
The three-in-five figures relates to members using family trusts, rather than the number expected to face higher tax under the proposal.
“When you introduce a minimum tax on trusts, you are effectively introducing a new tax on a significant proportion of Australia’s building industry,” Ms Martin said.
She warned that changing business structures could affect builder licensing, insurance, banking arrangements and existing contracts.
“These are not simple changes. Builders would need to spend considerable time and money working with accountants, lawyers, insurers and regulators to determine how their business should operate under a new regime.”
Ms Martin said those demands would come while residential builders were already dealing with rising costs and labour shortages.
A Treasury spokesperson said the reforms aimed to improve the fairness and sustainability of the tax system and help fund tax cuts for workers.
Treasury said trusts could elect to be exempt from the minimum tax if they continued making distributions to pre-nominated beneficiaries in accordance with arrangements nominated upfront.
That option would allow them to keep their existing structure.
“Under the election option trusts don’t have to restructure and therefore should face relatively smaller up-front costs,” the spokesperson said.
Businesses choosing to restructure could access rollover relief for three years from July 1, 2027. Treasury said this would provide relief from Commonwealth income tax consequences of restructuring, including capital gains tax.
That relief addresses tax liabilities arising from a restructure. HIA’s concerns also extend to professional fees and changes to business arrangements.
Treasury said upfront costs would differ between trusts and it expected a significant proportion to choose the exemption election.
Small Business Minister Anne Aly said the Government had listened to industry and wanted to give businesses flexibility and time to prepare.
Ms Aly said the exemption election would allow qualifying trusts to avoid restructuring. The Treasurer’s published statement says the election is not expected to incur state or territory stamp duties.
Ms Aly said the proposed July 2028 start date gave business owners time to consider their options and seek advice.
The Government said fixed trusts, charitable trusts and superannuation funds would be excluded, alongside several other trust types and categories of income.
