Trusts offered tax exemption to avoid restructure costs

Treasurer Jim Chalmers has offered businesses that use trusts an olive branch, extending carve-outs to limit stamp duty costs as a result of his budget tax changes.

Australia's small business community is set for a mass restructuring to avoid having to pay a new 30 per cent minimum tax on discretionary trusts by July 1, 2028.

In draft legislation unveiled on Thursday, Dr Chalmers expanded the exemptions businesses could use to limit or avoid restructuring costs.

As well as rollover relief for restructuring, businesses with a discretionary trust could avoid the new tax by choosing to make fixed distributions to pre-nominated beneficiaries.

Businesses that choose that option would avoid the need to restructure and pay state and territory stamp duties.

An estimated 350,000 small businesses operate through a discretionary trust structure and more than 200,000 of these are set to pay more tax, according to Treasury.

If those businesses restructured into a company structure or a fixed trust to avoid the new tax, they could be slugged with tens of thousands of dollars in stamp duties, according to accounting body CPA Australia.

Businesses may also need costly legal and tax advice, amended employment agreements, leases, supplier contracts and finance arrangements.

The new trust tax was forecast to raise $4.5 billion by 2030 and to reduce the number of discretionary trusts, which more than doubled over the past twenty years to around 840,000, Treasury said in the budget.

Also included in the draft legislation were carve-outs for charitable trusts, special disability trusts and testamentary trusts, which were previously promised by the government.

Distributions to sporting clubs from charitable trusts will also be excluded, up to a cap that will be decided on after consultation.

The expanded roll-over relief will be available for three years from July 1, 2027.

Trust beneficiaries that have to pay the new minimum tax will also be able to receive refunds on franking credits related to their trust income.

"We're big supporters of small business and the government's tax reform package includes over $3.8 billion in new measures that lower taxes on business to support investment and growth," Dr Chalmers said in a statement.