Key points
- The minimum tax is built on the false assumption that affected trusts can restructure; for many property businesses, stamp duty makes this commercially impossible.
- The ATO’s existing guidance on trust corporatisation actively conflicts with the Government’s proposed solution, leaving legitimate businesses with no workable pathway.
- Effective reform requires genuine coordination between Treasury and the ATO, and real consultation with private business.
The Government’s announcement of a 30 per cent minimum tax rate on discretionary trusts represents one of the most significant changes to the taxation of private groups in decades. While the stated policy objective is to improve fairness by aligning the taxation of trust income with the rates paid by wage and salary earners, the design of the proposal reveals a fundamental flaw. The measures proceed on the assumption that taxpayers who are adversely affected will be able to restructure out of trust structures. For many legitimate businesses, particularly those holding commercial and development property, that assumption is incorrect.
Stamp duty makes restructuring unworkable for property groups
The Budget materials make clear that the minimum tax is intended to change behaviour. Affected trusts are expected to alter their distribution practices or restructure into companies or fixed trusts, with expanded rollover relief presented as the solution. However, this approach ignores the commercial reality faced by a large number of trusts, particularly in the property sector. While income tax and capital gains tax consequences may be mitigated through rollovers, stamp duty remains a substantial and often prohibitive cost. In states such as Victoria and New South Wales, transferring commercial or development property can give rise to stamp duty liabilities in the millions of dollars. For these groups, restructuring is not a commercial option.
Legitimate businesses penalised with no path to exit
This creates a clear inequity in the operation of the policy. Legitimate operating groups are penalised not because they are engaging in aggressive or contrived arrangements, but because they are locked into structures that cannot be unwound without significant commercial harm. In these circumstances, the minimum tax would operate less as an integrity measure and more as a blunt penalty imposed on taxpayers who are least able to respond. Notably, the Government has released detailed proposals that assume restructuring will occur, rather than consulting on whether restructuring is practically available across different industries. Over time, this sort of blunt measure is likely to reduce business efficiency, dampen investment and development activity, and ultimately have broader negative effects on overall economic activity.
A company-style regime a more coherent alternative
This outcome is particularly concerning given that alternative policy approaches were available. One option would have been to consider a company‑style tax regime for trusts. Under such a model, trusts would be permitted to form tax consolidated groups, be taxed at the corporate rate, and dispense with trust distributions altogether. To the extent that the regime was not embraced by a taxpayer, the minimum tax could be applied.
This alternative would have directly addressed concerns around income splitting while preserving existing legal structures and avoiding the imposition of stamp duty. Such an approach would align the tax outcome with the underlying commercial reality, rather than forcing structural change purely for tax reasons.
ATO guidance conflicts with the Government’s solution
The issue is further compounded by the Australian Taxation Office’s long‑standing position on trust corporatisation. For several years, the ATO has indicated that it intends to issue a ruling denying the availability of sequential rollovers involving a move from a trust to a company, followed by entry into a tax consolidated group. The ATO’s published materials suggest that rollovers under Subdivision 122-A followed by tax consolidation utilising Subdivision 124‑M is ineffective, and that anti‑avoidance provisions may also be applied. This position actively discourages corporatisation at the same time the Government is suggesting restructuring as a solution.
Private groups commonly use trusts and single‑purpose vehicles for commercial, financing and asset protection reasons, particularly in property development. A coherent policy framework should support those groups to transition into corporate tax regimes where appropriate, rather than imposing tax penalties while denying workable pathways to restructure.
Ultimately, the minimum tax announcement highlights a broader issue. Effective reform in this area requires genuine consultation with private business and coordination between Treasury and the ATO. Without that engagement, the result is policy that appears principled at a conceptual level but operates punitively in practice.
