A trust can be very tax effective business structure. What is trust? To put it simply, it is an obligation imposed on a person to hold property or income for the benefit of others, who are known as beneficiaries. Two major types of trust used are described here.

Discretionary Trusts

Discretionary trusts are often established when a family is left with a portfolio of investments such as real estate, shares and so on. In such circumstances, the family may set up a discretionary trust to manage the investments with senior members of the family appointed as trustees of the trust. Families usually set up a company as trustee of the discretionary trust and name themselves as directors of that company.

The main advantages of a discretionary trust are that, you can pool the assets of the family into a single business entity and you can provide for tax effective income distribution to the various members of the family (beneficiaries), such as grandmother, grandfather, mum, dad, children and even to some close relatives.

Discretionary trusts are generally of an investment nature; that is, the income of the trust is derived from assets owned by the trust. Therefore, it is quite common that the trust owning business assets is used with combination of other trading business structures such as company or partnership.

If the trusts carry on an enterprise in Australia, the trustee needs to apply for ABN and can register for GST.

Unit Trusts

You can think of unit trusts as a cross between a company and partnership. Both companies and unit trusts have owners. In companies, these owners are called shareholders who hold shares. In unit trusts, they are called unit holders who hold units.

Unit trusts can issue to and transferred between unit holders in a manner similar to shares being issued and transferred between shareholders in company.

The major difference between a unit trust and a company is that unit trusts generally do not pay tax since all the trust’s profits are distributed to the unit holders. The unit holders pay tax on their share of the trust’s profits.

Other major factor small business entities operating as the unit trusts is that the trusts are generally eligible for 50 per cent discount on capital gain tax where as companies are not eligible for the discount on capital gain tax.

Services we provide

At JH Business Services & Taxation, we have extensive experience with the set-up and administration of all types of trusts. We can assist you with:

Please click here for our fees & charges for administration and preparation of annual accounts & tax return for trust.