The federal government’s proposed minimum tax on discretionary trusts has triggered warnings from three industry groups representing thousands of finance professionals. The concern isn’t just the tax bill, it’s the operational chaos that could follow if brokers need to restructure their businesses to avoid the new impost.
Brokers who hold their businesses in discretionary trusts may need to renegotiate every lender accreditation, aggregator contract and licensing arrangement before they can lawfully operate under a different entity. For some, that means unwinding relationships built over a decade and hoping the same lenders approve the new structure. There’s no automatic rollover.
The compliance chain most people miss
Public debate has focused on the tax cost and legal fees. The practical problem runs deeper. A mortgage broker needs an Australian Credit Licence or Credit Representative status to write loans. Change the business structure and that status doesn’t transfer automatically, it requires fresh applications, compliance documentation and insurer sign-off.
Then come the lender panels. A mid-sized commercial broker might hold 50 separate accreditation agreements. Restructuring means asking each lender to assess and approve the new entity. Some will. Some won’t. Some will take six months to decide. During that window, the broker can’t write business with that lender, and clients needing equipment finance or working capital have fewer options.
Professional indemnity cover, aggregator agreements and trust account arrangements all need updating. None of it happens overnight, and all of it costs money that wasn’t in the budget.
Who carries the disruption
Commercial brokers arrange roughly 72% of Australia’s equipment finance. Mortgage brokers facilitate more than 80% of new home loans. If a meaningful share of those brokers spend six to twelve months restructuring, the flow of credit to small business slows.
Construction businesses face a similar bind. One family-owned building firm with $400,000 in taxable income could see tax rise by 70%, one-off restructuring costs between $82,000 and $175,000, and ongoing compliance costs up to $67,500 annually. That’s before any disruption to statutory warranties, builder licences or bank facilities tied to the current structure.
The policy intent is to close a perceived tax loophole. The second-order effect is a wave of forced restructuring across regulated industries that rely on entity-level approvals.
The accreditation renegotiation risk
Lenders are under no obligation to approve a restructured broker. A broker operating as Trust A for ten years might apply to write loans as Company B and be declined, different risk profile, different ownership disclosure, different compliance history. The lender’s credit risk appetite may have tightened since the original approval.
If that happens, the broker loses access to that panel. Clients who preferred that lender’s rates or product suite need to go elsewhere or find a different broker. The broker’s revenue shrinks. The client’s choice narrows. Neither outcome was a policy goal, but both are plausible if hundreds of brokers restructure simultaneously.
Business loan clients may need to renegotiate or assign existing facilities. Assignment isn’t always possible, some loan contracts prohibit it, others allow it only with lender consent and a fee. If assignment fails, the loan needs to be refinanced, potentially triggering break costs if fixed-rate terms are involved.
The catch
- A broker restructuring to avoid the trust tax may need to renegotiate 50+ lender accreditation agreements with no guarantee of approval.
- Commercial brokers arrange 72% of Australia’s equipment finance; mortgage brokers facilitate over 80% of home loans, disruption here tightens credit access for thousands of small businesses.
- Mid-sized construction firms could face restructuring costs up to $175,000 plus annual compliance increases of $67,500, with potential knock-on effects for housing supply.
- Existing loan clients may need assignments or refinances, risking material break costs if fixed terms can’t be transferred.
What industry groups want
Three peak bodies have asked the government to exclude small business trading trusts from the proposed changes, or at minimum provide transition arrangements that protect licensing, accreditation and client access to finance. Master Builders Australia is seeking grandfathering for existing structures, a permanent small business carve-out, and a formal regulatory impact assessment.
The ask is straightforward: recognise that changing a regulated business structure isn’t a weekend task. It involves lawyers, accountants, insurers, lenders and licensing authorities. Rush it and you create a compliance backlog that slows credit for the businesses these brokers serve.
No government submission window has closed yet. If the policy proceeds without transition relief, expect the restructuring wave to hit in the second half of this year, with accreditation delays rippling into early next year.
What to watch in the next four months
Whether Treasury’s final design includes a small business exclusion threshold. Whether transition provisions allow brokers to maintain existing accreditations while restructuring. Whether lenders issue blanket approvals for entity changes or assess each case individually. Whether aggregators allow brokers to remain on their platforms during the restructuring period.
If none of those concessions appear, the base case is months of disruption for brokers, delayed credit decisions for small business borrowers, and a compliance cost nobody budgeted for.
For more on how regulatory changes are reshaping property finance structures, see our breakdown of property holding structure compliance under the new ASIC framework.
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General info, not financial advice.
