Tax & Super

Australian Government Proposes Trust Tax Workaround for Small Businesses

Shivangi

Sep 3, 2026 5:14 PM IST

Category Tax & Super

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Synopsis

The government offers small businesses a way to dodge stamp duty when restructuring discretionary trusts to avoid Labor’s new minimum trust tax.

Key Highlights

• The federal government has announced a small business trust tax changes Australia to prevent small businesses from having to pay state stamp duty when reorganising to break free of a new trust tax
• Businesses that elect to fix distributions can retain the discretionary trust structure, freeing them from new tax.
• Measures will be in place to exempt donations from discretionary trusts to registered charities and other qualified entities.
• Public consultation on the draft legislation is open until 18 September.
• Govt Seeks To Address Stamp Duty Woes With Fix

Treasurer Jim Chalmers proposed a small business trust tax changes workaround that would allow small businesses restructuring to dodge Labor’s minimum tax on discretionary trusts, a move that helps sidestep stamp duty. The federal government released draft laws on Thursday to implement the 30% trust tax, the last significant change from May’s federal budget slated for legislation.

There had also been concern during the consultation over stamp duty costs, with small business group COSBOA saying businesses using discretionary trusts could be forced to choose between higher tax and an expensive restructure.

Why Stamp Duty Has Come Up As An Issue

Stamp duties are levied by the states and territories each time property is transferred, with financial assets being treated as property for this purpose. This meant that it would typically be subject to a payment of stamp duty for restructuring its business in order to avoid the new trust tax.

This fresh tax now only focuses on discretionary trusts, which give the owners freedom to distribute profits amongst different companies and/or beneficiaries in any given length of time. These trusts are frequently used to minimise tax liability, the government has said. 

Though this would be a new tax, businesses that reorganise into a limited liability company or operate as a trust with sustained profit at the fixed trust, which allocates profits in specific percentages, wouldn’t pay it and also lose much of the discretionary flexibility offered by trusts. Such a reorganisation would not, however, be without its costs; most federal rollover relief programmes only apply in the context of a federal income tax (as opposed to state stamp duties).

How the Small Business Trust Tax Changes Australia Would Function

As part of this process, the government sought feedback on ideas to address it, but some state treasurers were resistant and in at least one case opposed any proposal for stamp duty waivers. 

The workaround, as it stands now, would allow those businesses to maintain their existing discretionary trust structure and not incur any stamp duty event. Trustees could instead elect fixed distributions to their current beneficiaries, rather than converting to a fixed trust. This arrangement would mean that, as long as kept in place, the new tax on trusts would be avoided.

Charitable Donations to Be Exempt

A further change would also specifically exempt donations from discretionary trusts to registered charities, deductible gift recipients, and income-tax exempt organisations (such as religious groups or sporting clubs) from the new tax. This change came after some trustees expressed worries that it would otherwise disincentivise their donations.

Timeline and Existing Exemptions

The new trust tax doesn’t commence until mid-2028, a year after proposed reforms to capital gains tax and negative gearing. There are several exemptions (including superannuation funds, disability trusts, deceased estates, testamentary trusts, charities and farm income).

Business groups also called for more support to cover the costs of legal and financial advice related to restructuring. 

Source: ABC News