Stamp duty charged by states and territories whenever property or financial assets are transferred has become a major obstacle for small businesses trying to restructure their operations in response to the federal government’s new trust tax rules.
Because financial assets count as property, most small business restructures trigger stamp duty. Moving into a company structure or converting a discretionary trust into a fixed trust would avoid the new federal tax, but doing so would be costly due to state stamp duty liabilities.
The federal budget promised “rollover relief” for “small businesses and others,” but existing federal rollover schemes only apply to income tax, not state stamp duties. Canberra had signalled it wanted to fix the issue and sought ideas during consultation but state treasurers responded with reluctance, and in some cases outright hostility, to suggestions they waive stamp duty.
With states refusing to budge, the federal government has designed a workaround to avoid triggering a stamp duty event. Instead of forcing small businesses to convert their discretionary trusts into fixed trusts, the legislation will allow trustees to retain their discretionary trust structure but opt out of using discretion.
Trustees would be able to elect to make fixed distributions to existing beneficiaries. As long as they maintain those fixed proportions, they would be exempt from the new trust tax without triggering stamp duty.
Another change would exempt from the tax any donations made from discretionary trusts to registered charities, deductible gift recipients, or income‑tax‑exempt entities such as religious organisations and sporting clubs.
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