The Property Council of Australia has called on Treasury to abandon proposed changes to the taxation of discretionary trusts, warning the reforms threaten to slow — or in some cases halt — the residential projects needed to hit the government's 1.2 million homes target.
The warning lands against a backdrop of significant slippage already: the latest ABS data shows the national dwelling pipeline is more than 112,000 homes behind the pace needed to meet the target by June 2029.
At the centre of the dispute is a proposed 30% minimum tax on discretionary trusts, due to commence 1 July 2028, with Treasury's consultation period closing 31 July.
Property Council modelling suggests small and mid-tier family developers — who commonly use discretionary trusts to ring-fence project risk, secure independent financing and carry forward losses across multi-year developments — would be hit hardest, despite having operated within the law for decades.
In some scenarios, the group warns, the effective tax rate on trusts distributing to a corporate entity could reach up to 70%, more than double the government's intended 30% floor.
Property Council chief executive Mike Zorbas (pictured) said the impact would fall disproportionately on the businesses actually delivering new supply.
"This is a flawed policy that is wrong at many levels and risks shrinking new housing supply further. All this while costs of capital, labour, and materials continue to rise," Zorbas said in a media release.
The group's submission argues the government's proposed three-year rollover relief for income tax and capital gains tax doesn't solve the underlying problem, since restructuring out of a discretionary trust structure typically triggers state stamp duty on the full unencumbered value of land — a cost with no federal offset.
For a mid-tier developer holding $10 million in development land, that could mean a stamp duty bill approaching $575,000 for each project transferred out of the structure. Businesses could also lose access to carried-forward losses accumulated during the holding and approval phases of a project, a particular risk given developments often run five to ten years before turning a profit.
Zorbas said the uncertainty was already affecting decision-making on the ground, with some members deferring new projects while they await clarity, warning the outcome would not be orderly restructuring but "projects paused, shelved, or abandoned."
The mortgage broking industry has also weighed in. The Mortgage & Finance Association of Australia raised similar issues in its own submission to the Senate inquiry into the broader tax reform package, flagging the potential impact on first-home buyers and small businesses and calling for clear guidance as the changes are implemented.
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