Labor’s family trust tax costed at $7.7 billion amid concern small business will be hardest hit

family trust

Shadow Treasurer Chris Bowen.

Labor has released long-awaited costings for its plan to introduce a 30% tax on family trust distributions to adults, revealing the policy will claw back almost $7.7 billion into government coffers over four years.

While the opposition first announced its discretionary trust policy several years ago, estimated savings for taxpayers have skyrocketed on previous estimates, increasing from $4.1 billion over three years.

The new costings, calculated by the Parliamentary Budget Office (PBO), show more than $26.8 billion will be added to the budget over 10 years if Labor wins the next election.

Labor said the sharp increase on previous costings was evidence wealthy Australians are using trusts “frequently” to minimise their tax bills.

“The fact is that the cost to the budget of income splitting through discretionary trusts has blown out,” Shadow Treasurer Chris Bowen said in a statement.

Part of its broader agenda to close tax loopholes, Labor wants to crack down on the use of discretionary trusts to skip out on income tax by pooling their income with other family members who may not be involved in their business.

However, there is concern thousands of small businesses using trusts legitimately, dispensing benefits to family members who work in their companies, will be caught in the crossfire.

Tony Greco, general manager of technical policy for the Institute of Public Accountants, says many family businesses will need to rethink their business structures if the policy is implemented.

“If you’ve got a mum and dad scenario and you compare it to a partnership, depending on the level of income, they’re going to be disadvantaged,” Greco tells SmartCompany.

“They’re not looking at the collateral damage of a one-size-fits-all approach,” Greco says.

Further, Greco says businesses who set up their affairs under the current rules could be penalised by charges like stamp duty if they try to restructure.

“It’s not easy moving assets, there are a lot of entities that will have to rethink the current structure they’re in,” he says.

Labor has defended the policy, saying 98% of taxpayers won’t be affected and small businesses can simply pay a wage to family members.

Labor also today revealed costings for its plan to cap deductions available to taxpayers for getting advice managing their tax affairs.

Under the plan, which exempts businesses with turnover of less than $2 million, Labor will introduce a $3,000 cap on deductions, saving taxpayers an estimated $370 million over four years.

More than $130 million would be spent over four years helping small businesses who employ young people entering the workforce or older Australians struggling to find work.

Meanwhile, the Australian Investment Guarantee, which has long been a centrepiece of the ALP’s small-business policy agenda, is slated to cost taxpayers more than $850 million by 2021-22 and more than $15.2 billion over the next decade.

NOW READ: “Referendum on wages”: Bill Shorten spruiks pay rise, tax cuts and skills investment in 2019 budget reply

NOW READ: Greens propose $3 billion tax break for small businesses dealing with wage increases


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3 years ago

The labour government will destroy many small businesses.

During the rudd-gillard government there where 13000 less businesses at the end, despite 10,000 new ones starting each year.

These actions will have huge impact on investment by business, the confidence to employ.

The Andrews government in Victoria think paying 167,000 for a builders labour is Ok on their projects

No doubt deep down federal labour does too.

They think all those SME’s should pay more and that’s also their employees don’t do as well to fund this rorting and allow all the government people get pay rises every year, whilst we can’t

Do some research this is right

That’s whilst the market is tight margins are tight and the real world has meant wages growth has not been high. Look how often sales are people are desperate for sales in stores.

Some of the highest rates for shopping centres leases don’t help either, that force shops not to sell much Australian made product

3 years ago

I think this country is going backwards rapidly. Hard working get disadvantaged – better to go surfing (I dont surf) and live on the dole with 2-3 kids in public school and public health! – Im sick of working till all hours doing red tape paperwork to be further disadvantaged – I setup a family trust to share the asset with the family in case of death and also protect it from the business, when no fault of our own. – Kerry Packer once said you would be a fool to not minimise your tax – but when people dont work, get handouts and pay NO TAX , that should be the crime or the way to SAVE MONEY for the country!

Get them to do Jury Duty, not my staff, where it impacts my small business PLUS I have to pay my employees to be there because of criminals….. Its just all back to front and , as you see, Im feed up!

We need a govt with balls – someone who will take the country and shake it up – someone who knows and has been in business, but someone who also cares about families, low income, aged and veterans. (Rather than 1-2 demographics for bloody votes!)

PS Define “wealthy” these days – middle class is dwindling away with more lower economic class whilst some rising into the wealthy. We are all asset rich but many cash poor

Truth in Media
Truth in Media
3 years ago

Trust distributions are currently tax in the hands of the beneficiaries. How is that a loop-hole? Taking a risk by sacrificing and buying assets does not mean you are an evil tax dodger. Sucking on the public purse and wasting tax dollars should be addressed, before targeting people who are trying to fund their lifestyle!

3 years ago

If you are person working for an SME and think about of voting Labor they are going for the people who have own those SME’s. When they destroy some of those and discourage people to be in business its going to impact all the employee”s of SME’s

There wont be as many SME’s and it will impact jobs, innovation and the status of this country.

This, the franking stuff, all impact people who owned or have owned SME’s and are trying to have some benefit from the mega hours that help keep close to 70% of Australia in jobs.

Think twice guys, they are not even in yet and scary.

The greens want death taxes, and Labor may not be far behind.

3 years ago

Nobody pointing out , Labour’s sinister policy. It is in the Labour’s political interest to deliberately put policies which destroys small businesses and destroys MIDDLE class , increases unemployment and increase people on dole . Because more people in doll will guarantee a base VOTE bank for the Labour. And once elected they can draw a six figure salary – send their children to private school and hob nob with the top end of town . PS – even labour repeatedly says its against the top end of town – one must understand top end of town is too rich and making them some what poor do not serve any interest to Labour. Its the Middle Class they are after as if they can reduce the size of this group and push toward the poor class will be reliant on dole and swing toward labour.

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