30 per cent tax on distributions<\/a> and capital gains, reducing the incentive to roll over assets into a company.<\/p>\nOn Thursday, Dr Chalmers, who also announced that trust \u00addonations to charities would be exempt from the tax, said the new fixed regime option for trusts would avoid the need to pay stamp duty. \u201cThe election would not \u00adrequire a restructure and is not \u00adexpected to result in state and \u00adterritory stamp duties,\u201d the Treasurer said. <\/p>\n
Dr Chalmers is seeking to minimise wider tax repercussions beyond Labor\u2019s own changes.<\/p>\n
However electing a fixed-\u00addistribution regime was still enough to trigger stamp duty in NSW and Victoria, one leading tax expert warned. Hamilton Locke tax partner Matthew Cridland said the difficulty for Treasury was that the public guidance issued by revenue offices in NSW and Victoria indicated that a change from discretionary interests to fixed interests might involve \u201ca change in beneficial ownership\u201d. <\/p>\n
\u201cWhile the public guidance does generally contemplate a formal trust deed amendment, the duties legislation itself is directed to changes in equitable interests and does not necessarily require an amendment of the trust deed,\u201d Mr Cridland said. <\/p>\n
He said it was difficult to reconcile the Treasurer\u2019s statement that electing to switch to a fixed-distribution regime was \u201cnot expected to result in state and territory stamp duties\u201d with the published positions of Revenue NSW, and the state revenue offices of Victoria and Tasmania. <\/p>\n
\u201cAt a minimum, taxpayers would require clear public guidance from those revenue authorities before it could safely be assumed that an election is free of duty consequences in those states,\u201d Mr Cridland said. <\/p>\n
The Albanese government has been so concerned about the \u00adimpact of changes to trusts and the stamp duty those trusts would have to pay that last month it moved to publicly support a trust in a case before the High Court where the trust was disputing a claim by the NSW government for a $1.5m stamp duty payment. <\/p>\n
Attorney-General Michelle Rowland\u2019s office confirmed it had joined that High Court case and made a submission. <\/p>\n
Neither the NSW not Victorian government responded to questions on how they viewed Labor\u2019s new trust option in relation to stamp duty liability. <\/p>\n
The Treasurer\u2019s office has told people it sought legal advice and was confident people would not be forced to pay stamp duty if they\u00a0took up the fixed-\u00addistribution regime.<\/p>\n
The Council of Small Business Organisations Australia (COSBOA) said the Albanese government\u2019s new rules were a \u201cbetter outcome for many affected small businesses than the original budget proposal\u201d, but the new option restricted businesses flexibility. <\/p>\n
\u201cWe appreciate that the government has listened to small businesses and that Treasury has responded with a practical option that should reduce the impact for many of those affected,\u201d COSBOA CEO Skye Cappuccio said. <\/p>\n
\u201cBut there is still a trade-off. Businesses choosing this pathway may retain their existing \u00adstructure and tax treatment, but they will give up some of the \u00adflexibility over distributions that is an important feature of discretionary trusts. <\/p>\n
\u201cThat flexibility is particularly important to succession planning in family trusts.\u201d<\/p>\n
The Australian Chamber of Commerce and Industry (ACCI) said the proposed minimum tax on trusts would leave many businesses facing significant restructuring costs and stamp duty liabilities of up to 5.5 per cent, depending on the jurisdiction and the value of the asset.<\/p>\n
It estimated about 240,000 small businesses used discretionary trusts to protect assets, manage irregular income, distribute profits, and support the continuity of family-owned enterprises across generations.<\/p>\n
ACCI chief executive Andrew McKellar said the government\u2019s higher taxes on small business came at \u201cthe worst possible time\u201d. He also pointed to the new option restricted flexibility.<\/p>\n
\u201cThe draft legislation does provide an option for small business trusts to be exempt from the minimum tax if they make fixed distributions to pre-nominated beneficiaries,\u201d Mr McKellar said. <\/p>\n
\u201cYet, this fails to recognise the variability in income of small businesses and the need for flexibility, which is why they choose to structure as a trust, so is likely to benefit few businesses.\u201d<\/p>\n
The tax hit on trusts was originally forecast by Dr Chalmers to raise $44.9bn for the government over the next nine years. <\/p>\n
The government on Thursday did not release an updated figure for that revenue forecast. \u201cThe government can\u2019t harvest that huge amount of money without leaving small businesses poorer and less competitive,\u201d Mr McKellar said. \u201cThe government is yet to answer the question: why penalise small businesses?<\/p>\n
\u201cImposing a minimum 30 per cent tax on these small and family businesses will mean they have less money to reinvest and grow, fewer opportunities to take on new staff, and reduced capacity to pay down debt.\u201d<\/p>\n
CPA Australia\u2019s head of tax policy, Jenny Wong, said there were some obvious improvements to the design of the new tax, but those who did not elect the new fixed regime and rolled over to a new structure could still incur stamp duty. \u201cThe election option is a genuine improvement,\u201d Ms Wong said. \u201cBut if you roll over to a company you still have the stamp duty problem.\u201d<\/p>\n
Charities that were at risk of losing billions of dollars in donations because of the higher tax on trusts also breathed a sigh of relief on Thursday. Fowler Charity Law principal Mark Fowler said the government\u2019s exemption was important for maintaining high levels of philanthropy. <\/p>\n
\u201cThe recognition that payments to charities will not be subject to the 30 per cent tax is a significant and welcome declaration from the government of its intent to retain existing philanthropic support of the charity sector,\u201d Mr Fowler said. \u201cHowever, the reform does not address the practical concern that businesses who have primary beneficiaries with an average taxable income below 30 per cent will restructure out of discretionary trusts.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"Labor\u2019s legislation establishing a contentious $45bn tax hike on trusts risks sparking a war with the states 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