The federal government's controversial proposal to levy a new 30 per cent minimum tax on trust funds has sparked fierce debate, with critics warning that certain small business owners could face an effective tax rate of 60 per cent or higher. Assistant Treasurer Daniel Mulino recently declined to directly address the 60 per cent figure on ABC's Insiders, noting that every situation differs.
Trusts are financial vehicles commonly used to manage properties, businesses, and assets, offering flexibility and control for wealthy individuals and business owners. However, critics and academics have long raised concerns that trusts can be used to split income across multiple family members to substantially lower tax liabilities. To unlock further tax advantages, some trust owners utilize "bucket companies" as holding mechanisms to cap residual trust income at corporate tax rates.
Why the 60 Per Cent Tax Rate Occurs
Under the government's proposed package, a 30 per cent minimum tax would apply to discretionary trust income to curb aggressive income-splitting strategies. For bucket companies, a harsher rule applies: money transferred from a discretionary trust into a bucket company would face double taxation—incurring both the 30 per cent trust tax and the 30 per cent company tax.
While individual family beneficiaries benefit from a refund rule to prevent a double tax hit, the government has intentionally omitted this relief for bucket companies to discourage their use as tax minimisation tools. ANU tax law associate professor Sonali Walpola supports the measure as an equity-driven step forward, noting that existing integrity provisions have historically been difficult for the Australian Taxation Office (ATO) to enforce.
Industry Backlash and Concerns
Business groups have strongly opposed the policy, arguing it unfairly targets legitimate small and medium-sized enterprises. ACCI chief executive Andrew McKellar cautioned that family-owned operations such as pharmacies, builders, and retailers rely on trusts for asset protection and succession planning. Meanwhile, Jenny Wong of CPA Australia argued that bucket companies serve essential operational purposes, such as retaining profits for reinvestment, purchasing equipment, and hiring staff during difficult financial periods.