'Scrap This Bad Tax Bill': Inside COSBOA's Senate Broadside, the Tripartite Push for Delays, and the Decades of Trust Litigation Looming Over Practice

Australia’s accounting and small business sectors have drawn a definitive line in the sand before Parliament. In what has rapidly evolved from technical discontent into an existential policy confrontation, the Council of Small Business Organisations Australia (COSBOA) has urged a Senate committee to scrap the proposed 30 per cent minimum tax on discretionary trusts entirely, branding the measure an unworkable and punitive strike against legitimate commercial enterprise. Delivering an uncompromising message to lawmakers, COSBOA argued that blunt revenue-raising disguised as integrity reform punishes ordinary family enterprises rather than targeting genuine unlawful conduct.

The push to abandon the draft legislation comes as Australia’s peak accounting bodies—Chartered Accountants Australia and New Zealand (CA ANZ), CPA Australia, and the Institute of Public Accountants (IPA)—appeared jointly before the Senate Economics Legislation Committee to plead for an immediate extension to implementation deadlines. Meanwhile, senior legal and tax specialists are warning that fundamentally flawed statutory drafting will trigger decades of expensive court battles, while government attempts to soften the blow through mechanism workarounds—such as the Excluded Election Trust (EET)—are being dismissed by practitioners as dangerous, inflexible band-aids.

The COSBOA Indictment: Integrity Versus Structural Punishment

For decades, discretionary family trusts have served as the fundamental operating architecture for Australia’s entrepreneurial economy. They provide asset protection, facilitate succession planning, and allow family members working inside private enterprises to manage genuine economic risks. However, the federal government's proposed flat 30 per cent minimum tax rate on discretionary trust distributions operates on what COSBOA described to the Senate as an erroneous presumption: that the mere existence of a trust represents an aggressive tax avoidance vehicle.

"This is a bad tax bill. It fails to distinguish between legitimate commercial operations and artificial arrangements. Tax integrity measures must target actual unlawful evasion, not dismantle the foundational structures that enable small businesses to take commercial risks and employ Australians."
— Council of Small Business Organisations Australia (COSBOA)

Speaking before the Senate committee, COSBOA highlighted that the blunt 30 per cent impost strips away the graduated marginal tax relief that allows family members—who often sacrifice corporate salaries to build business equity—to receive reasonable distributions. By applying a punitive headline rate regardless of actual economic reality, the bill threatens to drain working capital from thousands of regional and suburban businesses that have already absorbed successive waves of compliance inflation, interest rate hikes, and payroll tax expansions.

The EET Fallacy: Why the 'Band-Aid' Fix Creates a Succession Trap

In response to earlier industry outcry regarding the collateral damage to active trading trusts, Treasury put forward the Excluded Election Trust (EET) framework. Under the proposed compromise, certain trusts can elect into an excluded category, escaping the full force of the 30 per cent flat levy provided they satisfy stringent eligibility tests and lock in defined beneficiary entitlements.

However, tax practitioners across Australia have swiftly sounded the alarm, warning that the EET election represents a hazardous 'band-aid fix' that creates deep, unintended structural traps. By forcing discretionary trusts to formalise rigid, quasi-fixed entitlements to qualify for exemption, the rule destroys the very flexibility that makes trusts essential for family business continuity.

• Destruction of Generational Succession: Making an EET election often locks ownership profiles into the current generation of controllers. Passing equity to emerging adult beneficiaries or accommodating matrimonial property splits becomes legally cumbersome, triggering potential CGT event E1 or E2 resettlements.
• Asset Protection Vulnerabilities: Discretionary beneficiaries typically do not own an equitable interest in trust corpus until distribution. Converting an arrangement under an EET framework risks granting beneficiaries fixed equitable claims that creditors or bankruptcy trustees can attach to.
• Irrevocable Administrative Complexity: Practitioners caution that electing into the EET regime will be treated by the Australian Taxation Office (ATO) as an irrevocable structural commitment, leaving trustees stranded if subsequent family disputes arise.

The Tripartite Senate Plea: 'Please Can We Have Some More Time?'

The operational crisis facing accounting firms was laid bare during a rare joint appearance before the Senate Economics Legislation Committee, where the heads of CA ANZ, CPA Australia, and the IPA delivered an urgent appeal for sanity. Channeling Oliver Twist, the joint delegation asked committee members: "Please can we have some more time?"

The joint professional bodies stressed that even if the legislation passes Parliament, attempting to enforce commencement dates without adequate transitional runway will result in catastrophic failure across public practice. Small-to-mid-tier (SMP) firms, already grappling with profound talent shortages and overwhelming compliance demands, cannot review hundreds of thousands of client trust deeds, explain intricate legal choices, and execute restructuring elections within an unworkable statutory window.

The Litigation Engine: Ambiguous Drafting and the Courts

Backing the commercial fury of COSBOA and the practical warnings of the professional bodies is a scathing critique from Australia’s leading tax litigators. Senior tax barristers have cautioned that the bill’s statutory drafting is so poorly calibrated that it sets up decades of costly litigation. Rather than simplifying tax compliance, the legislation introduces complex, subjective definitions surrounding what constitutes an "effective economic beneficiary" and "commercially justifiable working capital retention."

Tax counsel note that the statutory language directly collides with decades of established trust law jurisprudence, stretching back to Harmer v FCT and the landmark High Court rulings on Section 99B and Section 100A in Bamford. By introducing statutory tests that require subjective determinations of family motive and historical contribution, the bill guarantees that disputes will flood the Administrative Review Tribunal (ART) and the Federal Court for the next generation.

"When statutory drafting fails to reflect fundamental commercial mechanics, the only winners are litigation teams. Small business owners will find themselves spending hundreds of thousands of dollars defending legitimate retained earnings against arbitrary revenue assessments."
— Senior Revenue Law Counsel

A Tightening Regulatory Environment Across the Profession

This legislative pressure cooker comes at a moment when practitioners can least afford procedural ambiguity. Regulatory scrutiny over accounting firm governance, documentation, and conflicts of interest is running at record highs across the domestic market.

Underscoring this unforgiving climate, the Australian Securities and Investments Commission (ASIC) recently directed Australia’s six largest audit and professional services firms to conduct comprehensive internal self-assessments following the identification of persistent auditor independence breaches and failures to properly document professional scepticism. Simultaneously, CA ANZ and the Human Rights Law Centre have taken the unprecedented step of co-publishing detailed statutory whistleblowing guidance to help accountants navigate ethical disclosure obligations without compromising their legal standing.

Whether it is managing partner accountability—a dynamic sharply highlighted by the ongoing debate surrounding executive departure payouts and the partner capital perception gap at KPMG—or firms strengthening technical benches through strategic executive appointments (such as BDO Australia appointing David Kwong and Phil Thornley to drive public sector compliance and AI analytics), accounting leaders must execute structural advisory against a backdrop of total regulatory transparency. Even the mid-tier network leadership landscape is transforming, evidenced by Moore Australia chairman David Tomasi taking the global helm of Moore Global. The clear message across all tiers: regulatory tolerance for procedural shortcuts is zero.

The Practice Survival Playbook: Navigating the Trust Impasse

While the Senate committee deliberates on whether to recommend gutting the bill, deferring its timetable, or pushing it through amendments, public practitioners cannot afford to wait passively. Discretionary trust clients require clear, cautious counsel that protects their interests without exposing practices to catastrophic professional indemnity claims.

1. Triage Client Trust Deeds Immediately: Identify all private client groups operating discretionary trading trusts. Audit deed definitions of trust income, default beneficiaries, and streaming powers to establish how exposed each entity is to the proposed 30 per cent rule.
2. Resist the Reflexive EET Election: Advise clients against viewing the Excluded Election Trust as an automatic escape hatch. Fully document the asset protection and succession trade-offs before locking families into fixed entitlement mechanisms that cannot be easily reversed.
3. Map Retained Earnings and Working Capital: Review client balances in light of emerging anti-avoidance positions. Ensure that retained earnings within trust entities are demonstrably tied to genuine commercial requirements, such as equipment purchasing, debt servicing, or payroll reserves.
4. Communicate Legislative Uncertainty Explicitly: Issue formal client advisory letters setting out the current parliamentary stalemate. Ensure clients understand that while COSBOA and the professional bodies are fighting for wholesale changes or extensions, compliance readiness must remain active.

Looking Ahead: The Cost of Ideological Tax Design

The united stance of COSBOA, CA ANZ, CPA Australia, and the IPA marks a pivotal moment for Australian fiscal policy. When small business advocates and peak accounting bodies stand shoulder-to-shoulder before a Senate committee warning of economic harm and litigation chaos, Canberra can no longer dismiss industry pushback as self-serving conservatism.

Legitimate tax integrity must target unlawful tax schemes, sham arrangements, and covert profit-stripping. Bludgeoning everyday family businesses with a 30 per cent flat tax while offering an unworkable, restrictive EET election does not constitute structural reform—it represents policy failure. For public practitioners navigating this tempest, rigorous technical analysis, clear client communication, and a refusal to adopt rushed band-aids will remain the only viable defence.