Tax reforms leave accountants, clients in planning ‘limbo’

“This leaves us with uncertainty around how we structure and plan some of our clients’ business and tax affairs. We’re in limbo to some degree. When do we start to action plans for clients? Do we just sit back and wait until we get some clearer direction or do we start actioning things now? These are issues that are front and centre for us at the moment.”

The proposal to impose a 30 per cent minimum tax on discretionary trusts could particularly cause headaches, as Campisi said a significant portion of his client base could be impacted should this policy be legislated.

“One of the main things that clients come to us with is wanting to buy a business,” he said.

“They ask us which structure they should buy that business in. Previously, a trust structure would have been the way to go. Now, it makes us think that maybe a trust is not the right vehicle.”

Similarly, Campisi said he would often structure properties in a trust for property investors but he would have to question his strategy and “think differently”.

“What do clients wanting to sell their business do in the current environment? It’s going to impact them if the 30 per cent minimum tax rate comes into effect,” he said.

“Moreover, whether clients ultimately request a restructure or not, they’ll have to seek advice and consult us on the best strategy, which is going to be an additional cost to them. It all comes at a cost.”

The government’s draft legislation to implement the main elements of the 30 per cent minimum tax on discretionary trusts added a new option to allow 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 is not expected to trigger state and territory stamp duty, according to the government.

Treasurer Jim Chalmers said the draft legislation includes options to reduce or eliminate restructuring costs for small businesses and others who use discretionary trusts.

However, under this proposed electable regime, nominated beneficiaries could only be added or changed later, when a nominated beneficiary passes away, or there is a family breakdown.

Campisi said this has “set the agenda” to move away from discretionary trusts and opt into fixed distributions.

“The biggest benefit of the discretionary trust was the flexibility it offered to have that discretion to distribute income,” he said.

“It wasn’t to avoid tax but to be able to spread your income with your family. Now, we may have to fix those distributions, which might be the right thing to do today. But years down the track, when our clients want to monetise their business and need to exit it, it’s not going to work in their favour. You’re planning how to best structure things for the future, which makes it very difficult.”

The CGT measures could lead to some business owners realising their asset early rather than holding it, Campisi said, who added that he is having discussions with his business clients about selling their pre-capital gain asset in the next 12 months before 30 June 2027 when the policy is due to come into effect.

Campisi is currently refraining from providing specific advice to his clients until the government and Treasury provide more details around the legislation proposals, he said.

“We’ve got time up our sleeves until next year for the CGT changes, and 1 July 2028 for the 30 minimum tax rate for discretionary trusts should that become law,” he said.

“We as accountants need to get a better understanding of the parameters of the changing legislation at this point in time.”

He said he did not believe the consultation periods have been sufficient, and that the government should have consulted more with businesses around the proposed changes.

“My view is their main emphasis was more on possibly allowing the younger generation to be able to afford buying houses,” he said.

“I really believe that's been the main political focus. What came out of that was all the tax changes that we have to deal with.”