Key Highlights

  • Senators asked whether owners could switch from trust distributions to salaries.
  • Wages bring withholding, Superannuation and other employment obligations.
  • Business groups say conversion involves an entity change and restructuring costs.
  • The proposed minimum tax rate is 30%, starting from July 2028 if enacted.

If a 30 per cent minimum tax applies to profits left in a discretionary trust, why not simply pay the owner a wage instead? That was the question Greens Senator Nick McKim put to Business groups at the Senate inquiry into Labor's trust tax bills. It matters because the Greens hold the vote, the committee is due to report tomorrow, and the answer reveals how many costs sit behind a payslip.

The question from the Greens

At the Senate Economics Legislation Committee hearings, McKim asked whether business owners would respond by switching to salaries, and whether a business could convert to a fixed trust cheaply.

The questions go to the heart of the policy. If owners can avoid the minimum tax at low cost by restructuring how they are paid, the measure may raise less than expected. If they cannot, critics argue the tax falls hardest on ordinary family businesses.

The Greens' position matters because Labor needs their votes. The Coalition opposes the trust bill.

What business groups told the inquiry

COSBOA's Skye Cappuccio said converting to a fixed trust involves the same entity change as restructuring into a company. In other words, it is not a cheap paperwork exercise.

Susan Franks of Chartered Accountants Australia and New Zealand said members weigh superannuation, workers' compensation and insurance costs, not just the salary itself, when deciding how to pay business owners.

Those costs are the reason a wage is not a simple substitute for a trust distribution. A distribution passes profit to beneficiaries; a wage creates an employment relationship, with the obligations that come with it.

Hypothetical example: distribution versus wage

Hypothetical example: a family trust runs a business that makes $150,000 profit before paying anything to the owner. This illustration is simplified and ignores personal tax rates, state payroll tax, workers' compensation premiums and the specific rules in the bill.

Option one: the trust keeps paying profit out as distributions. Under the bill as introduced, the Trustee would pay 30 per cent on the trust's taxable income, or $45,000, before beneficiaries are taxed with a non-refundable offset for that amount.

Option two: the trustee employs the owner and pays a wage. If the business wants total wage costs, including the 12 per cent superannuation guarantee, to use up the $150,000, the wage would be about $133,929 and the superannuation about $16,071.

On those assumptions, the trust would have little or no Net Income left for the minimum tax to apply to. But the owner would pay personal tax on the wage at marginal rates, and the business would take on employer obligations.

Those obligations include Withholding tax from wages and paying superannuation on time. Under Payday Super, which started on 1 July 2026, contributions must generally reach the fund within seven business days of payday, according to the ATO. For the first year, to 30 June 2027, the ATO's compliance approach in PCG 2026/1 sorts late payments into low, medium and high risk zones depending on how quickly they are fixed.

Whether a wage is deductible, and whether its amount is commercially reasonable, depends on the facts. Paying wages to reduce tax can also attract scrutiny under existing anti-avoidance rules. The example illustrates the trade-off, not a recommended structure.

The delay debate

Industry groups are split on what the Senate should do next. CPA Australia's Jenny Wong told the hearing, "I think a delay would be helpful".

Matthew Addison, until recently COSBOA chair, said a one-year delay would be "a waste of time" without substantial change. Speaking as executive director of the Institute of Certified Bookkeepers, he called the tax a "blunt instrument" and argued existing anti-avoidance rules should be used instead.

On the other side, the ACTU urged the Senate to pass the bills. It said a nurse on an average full-time salary of $90,000 could pay up to $10,000 more tax than a household receiving the same income through a trust.

That argument cuts directly to McKim's question. If wage earners pay full marginal rates, supporters say, owners using trusts should face something closer to the same treatment.

The Greens' other demands and the Senate timetable

The Greens have tested other parts of the design. McKim earlier warned that private school fees paid from trusts could escape the tax through the exemption for charities and deductible gift recipients. He said he wanted to "knock this out of the legislation". The annual cap on exempt amounts had not been set.

The party also opposes exempting all distributions to charities and deductible gift recipients.

Greens leader David Shoebridge has said he backs a 30 per cent minimum tax but considers the small business exemption too generous. He said: "We're not interested in being the handmaidens for yet another empty messaging exercise by the Labor Party."

The House passed Tax Reform No. 3, the Minimum Tax on Discretionary Trusts rates bill and Tax Reform No. 4 on 29 October. They are bills, not law, and the Senate has yet to vote.

As introduced, rollover relief for trusts that restructure would run from 1 July 2027 to 30 June 2030, and the minimum tax would start on 1 July 2028. Some regulations and instruments needed to apply the rules have not yet been published.

The government is reported to be targeting Senate passage in the third week of November, though that timetable has not been officially confirmed, and no agreement between Labor and the Greens has been announced.

What to watch

Friday 13 November 2026: the Senate Economics Legislation Committee is due to table its report, including any additional comments from Greens senators.

Third week of November: the reported target for a Senate vote, and the window for any Labor–Greens amendments on the small business exemption or charity distributions.

December: the Mid-Year Economic and Fiscal Outlook may update the Revenue estimate.

1 July 2027: rollover relief would open.

1 July 2028: the minimum tax would start, if passed in its current form.