A trust is a structure where a trustee (an individual or a company) carries on business for the benefit of other people (the beneficiaries). It's set up through a formal trust deed which outlines how the trust will operate.

There are 2 main types of trusts:

  • discretionary trusts where the trustee decides how the profits will be distributed among the beneficiaries
  • unit trusts where the interest in the trust is divided into units, and the distribution of the profits is determined by the number of units a beneficiary holds.

A trust is not a separate legal entity. The trustee is legally responsible for the operation of the trust, and legally liable for the debts of the trust. Commonly however, the trustee is a company (a corporate trustee), which can reduce liability.

A trust can be tax effective due to the flexibility of its asset and income distribution. It can't distribute losses however, only profits.

The key features of a trust business structure are:

  • set up and operation can be expensive
  • it requires the trustee to undertake annual formal administrative tasks
  • it must have its own tax file number (TFN) and ABN
  • it must be registered for GST if its annual turnover exceeds $75,000
  • beneficiaries of the trust may be liable to make Pay As You Go (PAYG) instalments on distributions they receive
  • it must pay super for any employees.

Before deciding on your business structure, it's important to get professional advice from a business adviser, solicitor or accountant. They can help you choose the structure that best suits your personal circumstances and business objectives.

Last updated: 19 April 2024