Business structures – Trust overview

When commencing a business venture, it is necessary to consider the most appropriate
type of business structure to put in place. Different business structures have different
benefits and disadvantages. This article looks at trusts – how to set up a trust and the
pros and cons of the trust structure.
Key Features
A trust is an obligation imposed on a person (the trustee) to hold property or income for
the benefit of others (the beneficiaries). A trustee is responsible for the operation of the
trust. A trustee can be an individual, partnership or a company. There are a number of
laws which govern how a trustee must perform his or her obligations to the trust. The
primary obligation of a trustee is to act in the best interests of the beneficiaries of the
Trusts are set up for a number of reasons, including family and charitable purposes. For
business purposes, the most common types of trusts are:

  • Discretionary trusts (also called a family trust): The trustees of a discretionary
    trust are able to distribute income and capital gains to beneficiaries in whatever
    way they desire. There is no fixed entitlement for each and every beneficiary.
  • Unit trusts: A unit trust is like a company where the trust property is divided into a
    number of shares called units. The number of units held by each beneficiary
    determines his or her entitlement to a share of assets and income.
  • Hybrid trusts: are a cross between a Discretionary and a Unit Trust. Beneficiaries
    hold a defined amount of units but the trustee has the discretion to vary each
    beneficiary’s entitlements and income.
    How to Set Up a Trust
    A formal deed is required to set up a trust. A trust deed outlines the purpose of a trust,
    the property involved, the rights and obligations of the trustee and beneficiaries and how
    assets will be distributed to the beneficiaries. It is recommended that a trust deed be
    prepared by a solicitor.
    A trust must have its own Australian Business Number (ABN), which can be obtained
    online through the Australian Business Register.
    A trust must also have its own Tax File Number (TFN), which can also be obtained
    online from the ATO.
    A trust must be registered for GST if annual turnover is $75,000 or more.
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    Trusts that run a business must complete a tax return, showing the income the trust
    earns, deductions it claims and the amount of income distributed to each beneficiary.
    Pros and Cons
    The advantages of a trust structure include:
  • Flexibility in how income is distributed
  • Tax planning flexibility, including income splitting
  • Asset protection
  • Beneficiaries are generally not liable for the debts of a trust
  • Beneficiaries of a trust pay tax on the income they receive from the trust at their
    own marginal tax rates
  • A trust is more private than a company
    The disadvantages include:
  • A trust is a complex legal structure, which is expensive to set up and run
  • There are considerable legal and compliance requirements
  • There can be inflexibility, as powers are restricted by the trust deed and the law
  • It can be difficult to make changes to the structure once it is set up
    A trust might be an appropriate structure if a business venture will involve a sizeable
    amount of property and money. That is because a trust can be beneficial in protecting
    assets and minimising taxation obligations. Trusts are also a common structure choice
    for family businesses because various family members can be made beneficiaries of the
    trust that is operating the business.
    A trust is the most complex of all the business structures, with complicated tax
    implications and legal and compliance requirements. As such, it is highly recommended
    that advice is sought from a solicitor to check whether a trust suits your circumstances.
    If you or someone you know wants more information or needs help or advice, please
    contact us on 02 9191 9293 or email