Housing industry representatives have questioned the government’s estimate of the regulatory costs associated with its proposed discretionary trust tax reforms, warning the changes could impose a considerably greater financial burden on businesses than the projected $141.5 million (US$97 million) a year.
Concerns were raised at a recent hearing of the Economics Legislation Committee, which is examining the proposed 30 percent minimum tax on discretionary trusts.
The tax hike is expected to impact a large number of smaller building and construction companies who use the business structure.
Simon Croft, CEO of the Housing Industry Association (HIA), told the enquiry that the government’s estimate did not adequately examine the potential consequences for businesses.
“We say [it] is a gross underestimate of the costs and doesn’t take into consideration … any of these issues that we have been raising and about the ripple effect,” he said.
“The compounding impact of all of these things. This just comes on top of the ban on the self-managed super funds, the negative gearing [and] capital gains tax changes, the tax increases on businesses, the wage increases, payday super.
“The list goes on and on and on, and continues to be considered in isolation from what this means for businesses on the ground and housing supply more broadly.”
Liberal Senator Andrew Bragg said the government had estimated the regulatory impact at $144 million but had failed to adequately account for compliance costs.
“As far as I can see, they haven’t done any analysis on what kind of investment impact it is going to have going forward, whether that be investment at the builder level or investment at the developer level,” he said.
Andrew Mihno, head of the Urban Development Institute of Australia (UDIA), told the enquiry that the practical implementation of the government’s changes had not been taken into consideration.
“We’re very clear on what we understand they’re trying to do, however, we point out the fact that, for instance, these rules are so complex that there are a lot of people that are going to want to go up to the ATO [Australian Taxation Office] and want to get advice because of the serious implications if they get it wrong,” he said.
“The ATO through no fault of their own is going to have to do this, and are they resourced? We don’t think that they are and in the past they haven’t been able to do it in a timely manner.
“We can’t wait six months, 12 months for a decision because it’s going to delay business.”
Meanwhile, Treasurer Jim Chalmers has maintained that the changes to discretionary trusts are about “making the tax system fairer” by bringing the tax rates applying to trusts more closely into line with those paid by workers.
“Discretionary trusts allow some people to plan their tax affairs in ways that aren’t available to most Australians,” he said.
“Over 90 percent of small businesses will not be affected by this change.
“Small businesses operating through discretionary trust structures will be eligible for generous rollover relief if they want to restructure.”
The government said it has conducted widespread consultation around the proposal.
