Thirty percent trust tax and capital gains changes face Senate scrutiny under early-November plans

The government planned in early-November reporting to complete hearings on its proposed 30 per cent minimum tax on discretionary trusts, which it intended to pass in the last parliamentary session of the year in mid-November, alongside a capital gains tax carve-out for start-ups. Neither measure has the support of business: the business groups ACCI and COSBOA argue trusts - financial vehicles that give users flexibility over their wealth and avenues to reduce tax - are vital for small businesses and should not face a 30 per cent rate. There are exemptions, and any trust can escape the tax by relinquishing some of its 'discretion' to move money around, the main avenue for minimising tax, but business and accounting groups say the carve-out is too narrow; representatives of the chartered accountants' body told the hearings there should be more flexibility on access, including discretion for family breakdowns.

Advocates of reform, including the peak union body, the welfare advocacy group ACOSS and tax-law academics Sonali Walpola, Kathryn James and Dale Boccabella, were also scheduled to appear; their expertise is understood to have been influential in guiding the thinking of the Greens, whose Senate votes will be decisive and who broadly support the proposal's aims despite some concerns. Mr Boccabella has said the government should resist calls for exemptions where possible to avoid unintended loopholes, warning that 'a small minority of downtown lawyers and accountants' would exploit any gaps.

The start-up capital gains carve-out

Under the new capital gains tax regime announced in the May budget, an asset's initial value is indexed so that only real gains are taxed; start-up founders objected that a business starting from near-zero value would effectively receive no discount when sold. The government's proposed fix would let 'investors in innovative start-ups' keep the current 50 per cent discount if they prefer it over the new inflation discount. Allegra Spender, a prominent critic of the indexation approach, said the carve-out was a good idea but too complicated and too narrow: 'Those firms who work at the cutting edge of productivity, like dynamic tech firms with large-scale appeal, they're the firms we're in danger of losing, but they are probably going to fall out of the government's criteria.' Her alternative is a flat 40 per cent discount for any 'active' assets, a definition that already exists in tax law. The government points to Treasury analysis suggesting the indexation discount is not always harsher than a flat 50 per cent discount, argues that giving start-ups the choice is more generous than the status quo, and notes many founders can also access the extra 50 per cent small-business concession; Treasury Secretary Jenny Wilkinson has also pointed to an OECD finding that capital gains tax rates are not a major factor in a country's level of innovation.