The Council of Small Business Organisations Australia (COSBOA) is warning the Federal Government’s proposed changes to capital gains tax and discretionary trusts risk unfairly capturing genuine small businesses, increasing complexity, undermining investment confidence and weakening productivity across the economy.

COSBOA said small business owners across Australia were expressing significant concern, stress and frustration about the proposed measures, with many operators now trying to understand the potential long-term implications for retirement planning, succession arrangements and business viability.

COSBOA CEO Skye Cappuccio said small businesses should not become collateral damage in tax changes that do not reflect the reality of how they operate.

“These are genuine small businesses that employ Australians, support local communities and have often been built over decades through significant personal and financial sacrifice,” Ms Cappuccio said.

“Small business owners are increasingly concerned they will be unfairly impacted by changes that do not properly recognise how their organisations actually operate.

“These are not abstract tax settings for small business owners. These decisions are deeply personal and directly tied to retirement planning, succession planning, family livelihoods and the future of businesses built over generations.”

COSBOA said many small business owners have spent years reinvesting into their businesses rather than paying themselves higher wages or consistently contributing to superannuation, with the expectation that the eventual value of the business would support their retirement.

“The proposed changes risk undermining one of the fundamental incentives that drives entrepreneurship and long-term small business investment in Australia,” Ms Cappuccio said.

“Small business owners take risks, accept uncertainty and often sacrifice stable income to build businesses that employ others and contribute to the economy.

“If the reward for that risk is reduced or made more uncertain, Australia risks sending exactly the wrong message to people who are creating jobs, investing in their communities and building productive enterprises,” she said.

COSBOA has also raised concerns about the practical implementation of the proposed capital gains tax changes, including uncertainty surrounding future business valuations and how those valuations would be recognised from 1 July 2027 if the measures proceed.

“Small businesses need certainty and fairness,” Ms Cappuccio said.

“Many operators are now trying to understand not only the tax implications of these changes, but also the potential legal, accounting and restructuring costs that may come with them.”

COSBOA said the proposed trust taxation measures risked capturing a large number of genuine operating businesses that use discretionary trusts for legitimate commercial reasons, including asset protection, succession planning, managing fluctuating income and supporting intergenerational family enterprises.

COSBOA said many small businesses were particularly concerned the proposed minimum tax rate on discretionary trust distributions exceeds the existing 25 per cent small business company tax rate, creating pressure for costly and complex restructuring.

“The reality is that restructuring a small business is not simple, fast or inexpensive,” Ms Cappuccio said.

“Even where rollover relief is proposed, many businesses could still face significant legal, accounting and potentially state-based transfer costs simply to move to another structure.

“For some small businesses, the cost of understanding and implementing these changes alone will be substantial. That is money and time being pulled away from jobs, technology, growth and productivity.”

COSBOA said the proposed measures appeared inconsistent with the Government’s broader productivity and red tape reduction agenda.

“We have welcomed positive signals that the Government is acting to reduce unnecessary red tape. Yet the proposed tax changes are increasing complexity, compliance costs and uncertainty for the small business sector,” Ms Cappuccio said.

“Every additional dollar spent on administration, restructuring and compliance is a dollar not invested into employing staff, adopting technology, expanding operations or growing productivity.”

COSBOA said it supports genuine tax reform that improves fairness and simplicity; however, reforms must not unintentionally disadvantage genuine small businesses and family enterprises.

Reforms should clearly distinguish between passive wealth accumulation structures and genuine operating businesses employing Australians and contributing to local economies.

The organisation is calling on Government to:

• Modernise the existing Small Business CGT Concessions by increasing eligibility thresholds to include businesses with annual turnover under $10 million and net capital assets under $12 million
• Explore exemptions or alternative arrangements for genuine small businesses operating through trusts, similar to existing exemptions available to primary producers
• Ensure fair and practical valuation arrangements are available from 1 July 2027 if the CGT measures proceed
• Undertake further consultation with the small business sector before implementing changes

“Australia cannot build productivity by increasing the tax burden on small business,” Ms Cappuccio said.

“If we want a stronger economy, we need policies that encourage entrepreneurship, investment and long-term business growth – not settings that make it harder, more expensive and more uncertain to build a small business in Australia.”