By Jacob Shteyman in Canberra

Labor faces a narrowing path to secure a tax hike on trusts, caught between irate small businesses and a hardline new Greens leader.

Treasurer Jim Chalmers’ changes to the taxation of discretionary trusts, announced in the May budget, were never going to go down well with small business owners, who use the arrangement to minimise tax, protect their assets and arrange success planning.

But the bill, which the government is planning to introduce this week, comes at a particularly testy time in its relationship with the business community, following a spat over a ban on card surcharges.

“We can’t have a situation where small business becomes the punching bag of government,” Andrew McKellar, chief executive of the Australian Chamber of Commerce and Industry, said on Monday.

Mr McKellar said the new minimum 30 per cent tax would hit 240,000 small businesses, forcing many to restructure into a company and face tens of thousands in dollars in legal fees, financial advice, stamp duties and other costs.

Labor has attempted to mollify business concerns by providing a workaround which would prevent the need to restructure a discretionary trust by electing to make fixed distributions to pre-nominated beneficiaries instead.

Mr McKellar said the exemption was unworkable.

“It is inflexible. It provides a situation where there are significant restrictions, obligations, complexities in the proposed excluded election trust workaround,” he told reporters.

“We don’t think that that’s satisfactory, and we think that the penalties … are also extremely onerous.”

But David Shoebridge thinks the exemptions water down the legislation too much and wants the workaround walked back.

The Greens are broadly in favour of hiking taxes on trust, which they see as a vehicle for wealthy families to dodge tax at the expense of workers, but Senator Shoebridge is raring for a fight with Labor in his first parliamentary test as party leader.

Assistant Treasurer Daniel Mulino denied the exemptions watered down the changes, calling on the Greens and the opposition to negotiate in good faith.

“This is about fairness in our tax system. It’s about trying to better align the taxes that people pay when they earn income through trusts versus when they earn income from working, from providing their labour,” he told ABC Radio.

Opposition Leader Angus Taylor called for politicians across the aisle to team up to defeat Labor’s bill.

“Anyone who cares about small business should be opposing this rotten legislation,” he said.

News all day, every day at CityNews.com.au.