Incoming tax reforms could put as many as 20,000 home builds at risk in the short to mid-term, according to housing industry experts.
The claim was made during a Senate inquiry examining the potential economic impact of a proposed 30 percent minimum tax on discretionary trusts, which are used by about 20 percent of building and construction businesses.
The industry warned the proposed change could create costs beyond those associated with seeking tax and legal advice, including changes to insurance coverage, licensing difficulties and the risk that legal business restructuring could be mistaken by regulators for phoenixing.
The illegal practice involves a company with outstanding debts shutting down and reopening under a new name.
Liberal Senator Andrew Bragg asked key stakeholders in the building and construction sector whether they understood the broader economic implications of Labor’s proposed tax reforms.
In response, Simon Cowan, public policy specialist at the Property Council of Australia, said his group conducted a survey of around 1,500 business owners after the government announced its tax reform measures, and found around 60 percent expected delays or changes in projects as a result.
“Amongst that 60 percent, one in three believe that they’ll need to cancel their project as a result of these changes,” he told the Economics Legislation Committee.
Cowan said up to 15 percent of the housing market could be affected, which Bragg estimated would equate to around 20,000 home builds.
In its April report, the National Housing Supply and Affordability Council estimated that Australia would build about 980,000 new homes over the five years to June 2029, around 220,000 fewer than the federal government’s 1.2 million-home National Housing Accord target.
Costs Mount for Small Builders
Master Builders executive Lisa Dart said she feared “grave unintended consequences” of the change to trusts.
“The costs involved are far from insignificant,” she told the enquiry.
“For a small family-owned construction business with a taxable income of $400,000, the reforms could result in tax increases of up to 70 percent—annual ongoing compliance costs of between $21,000 to $71,000 and … restructuring costs ranging from $82,000 to $175,000.
“It is unrealistic to expect small businesses to absorb costs at this magnitude without significant consequences. ”
Treasurer Jim Chalmers recently said the changes to taxing discretionary trusts were about “better aligning the tax treatment of income from assets and income from work”.
“We know there are legitimate reasons to use trusts, including succession planning and asset protection,” he said in October.
“But the flexibility provided by discretionary trusts allows some people to plan their tax affairs in ways that aren’t available to most workers and families.”
Industry representatives have also warned that some commercial and property investment trusts, including certain unit trusts, could fall within the scope of the reforms if they do not meet the proposed definition of a fixed trust.
The tax reform on discretionary trusts remains before parliament.
