CPA Australia warns 30% trust tax would hit small businesses and families

CPA Australia has cautioned that reported plans to impose a 30% minimum tax on trust distributions could have significant consequences for small businesses and households.

The accounting body added that the proposed move also adds uncertainty in the final days before the Federal Budget.

CPA Australia Tax lead Jenny Wong said the prospect of such a change so close to budget night was already “fuelling anxiety and speculation” among businesses, investors and advisers.

Wong said: “To float the idea of taxing trusts one week out from the Federal Budget is unfair to the millions of Australians who use and are beneficiaries of trusts.

“CPA Australia supports a fair and sustainable tax system, including targeted measures to address inappropriate tax minimisation.

“However, the lack of clarity around what the 30% tax would entail is causing panic and uncertainty – this is poor policy development.”

Citing media reports, she said that the government is considering a non-refundable withholding mechanism that would apply a minimum 30% rate to distributions from trusts.

This kind of framework would “materially alter” after-tax positions and could fall most heavily on middle income earners and smaller operators.

“An effective personal income tax rate of 30% typically applies to taxable income nearing A$200,000 [$144,920], yet millions of middle income Australians receive trust distributions as part of normal business and investment activity.

“To impose a blanket rate that sits at the higher end of tax rates in Australia isn’t about restoring equity – it risks introducing a punitive regime,” Wong added.

The professional body argued that overlaying major new settings on top of already complex trust rules without first simplifying the system would further increase compliance pressures.

In particular, it pointed to the existing administrative demands linked to family trust election provisions.

Wong also recalled that a comparable minimum tax concept had been examined in the past but was ultimately abandoned, highlighting what she described as the “sensitivity and complexity of trust reform”.

Last month, CPA Australia criticised the federal government’s draft reforms on foreign resident capital gains tax rules.