Leave small businesses alone in trust tax, building body says

The peak body pointed out that the proposed excluded election trust (EET) acts like a “Trojan horse”, and there is a perception that those operating as a discretionary trust can “deem” those arrangements as a fixed trust arrangement, do nothing, and avoid a significant increase in tax. However, it asserted that this is not correct.

The draft legislation added a new option that allows a trust to be exempt from the minimum tax if it elects to make fixed distributions to pre-nominated beneficiaries as an alternative to rollover relief. The election would not require a restructure, and the government said it does not expect this to trigger state and territory stamp duty.

The recently-released draft legislation only adds another layer of complexity, and the fixed distributions option undermines the very nature of a discretionary trust, according to Master Builders Australia.

It said businesses would now be forced to consider whether to do nothing, retain a discretionary trust, and incur significantly more tax.

Their second option would be to restructure now, lose long-standing protections and flexibilities required in the construction sector, incur significant restructure, business, and professional services costs, but take advantage of some rollover relief from Commonwealth costs.

Alternatively, businesses could consider the new option and avoid a tax increase but delay the inevitable, the body said. Businesses still lose long-standing protections and flexibilities associated with discretionary trusts immediately, but also risk losing rollover relief when they inevitably would wish to change distributions and/or beneficiaries in the future.

“For small business, the EET election does not resolve the issue that the discretionary trust has been a long-established structure used for asset protection, succession planning, risk management, and flexibility in managing the often-variable income that comes with trading on one’s own account,” the submission said.

“The no-win situation that Master Builders has consistently called out since the announcement of these reforms in the federal budget remains the case.”

The industry association has recommended the adoption of grandfathering arrangements as the only “common-sense” way to allow the fair implementation of these reforms in order to provide certainty to existing businesses, particularly small businesses which comprise 98 per cent of the construction industry.

It also said this would allow new businesses to make a clear and informed choice based on current legislative arrangements that would ultimately include the proposed 30 per cent tax.

Furthermore, it said that should the reforms progress in their current form without any grandfathering arrangements, there should be indefinite rollover relief to ensure that those who choose the EET election are not disadvantaged in the future.

Master Builders Australia CEO Denita Wawn said small building businesses continue to be left in a “no-win” situation, something she said the body has consistently called out since the announcement of these tax reforms in the 2026 federal budget.

“Master Builders continues to oppose the reforms. What it comes down to is that these small businesses have had the rug pulled out from under them with no way out,” Wawn said.

The building and construction industry body said it will continue to advocate in various seats for small businesses to be left alone, underscoring that it is crucial for local MPs around the country to grasp the impacts of the proposed changes on small businesses in this industry.