Blog · Structures
Family trusts explained: asset protection and tax planning
A family (discretionary) trust is one of the most common structures for Australian business owners and investors. Set up well, it can protect assets and give you flexibility over how income is taxed. Set up badly, it's an expensive piece of paper.
How it works
A trustee (often a company) holds assets and runs the business or investments for a group of beneficiaries, usually family members and related entities. Each year the trustee decides which beneficiaries receive the trust's income, and how much each gets.
Why people use them
- Asset protection: assets held in the trust are generally kept separate from the personal risks of the people running it.
- Flexible distributions: income can go to beneficiaries in lower tax brackets, within the rules.
- Capital gains: a trust can pass on the 50% CGT discount to individual beneficiaries, which a company can't.
- Succession: control can pass to the next generation without selling assets.
The rules to respect
- Resolve distributions by 30 June. If the trustee misses it, the trustee can be taxed on the income at the top marginal rate.
- Distributions to children under 18 are taxed at penalty rates on most unearned income.
- A trust can't distribute a loss. Losses stay in the trust and can only be used against future income if strict tests are met.
- Distributions must actually be paid or properly accounted for. The ATO looks closely at arrangements where someone else really benefits.
How we help
We set up family trusts with a corporate trustee, prepare the trust deed, ABN, TFN and GST registrations, and remind you before 30 June so your resolutions are done properly every year.