Urgent changes needed for almost half a million Australian companies transitioning around trusts

"Almost half a million Australian businesses may face a tax shock unless the federal and state governments work together on changes to discretionary trusts," said Innes Willox, Chief Executive of the national employer association, Australian Industry Group.

"We have made three recommendations in a submission on the minimum tax on discretionary trusts and written to state treasurers on the impact it will have in their jurisdiction.

"We are concerned that businesses transitioning out of a trust structure as part of federal tax system changes will still be impacted by state-level duties.

"The ABS says 494,000 businesses – 18% of the total registered in Australia – operate through a trust structure. Most are small businesses, and many are currently contemplating changing their ownership arrangements.

"The Federal Government has extended rollover relief to these businesses, and state governments should do the same so they are not unfairly affected.

"Our submission recommends:

1. Flexibility should be achieved by extending rollover relief to all entities transitioning out of a discretionary trust structure, with no limitation on the kind of company or partnership structures which are adopted.
2. Transition rules should be kept simple via the use of existing tax administration concepts to ensure administrative complexity and transaction costs are minimised.
3. The Commonwealth should engage with state and territory counterparts to secure corresponding relief from state-level transfer duties for entities w hich utilise rollover relief arrangements.

"Our correspondence to state treasurers outlines the kind of impact for a business in their state for a business with $5 million of land and $5 million in other assets – and given every state levies differently, it means liabilities of $555,525 in Queensland, $506,115 in Western Australia, $305,000 in Victoria and $256,287 in New South Wales.

"We contend transitioning companies should not be subject to these duties or that there is some state government relief for transitioning companies.

"We need more flexibility, simplicity and an eye on state-level business transfer duties so that businesses can access genuine rollover relief to execute this change without unintended consequences," Mr Willox said.

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