Advantages and Disadvantages of a Trust Business Structure

A Trust is formed when a trustee holds the assets and runs the business, distributes incomes to beneficiaries, and follows the provisions in the trust deed. Consider a Trust if more than one family is involved in running the business.

• If you use a trust for your business structure, the trust:
  
• must have its own tax file number (TFN) for lodging its annual tax return
  
• must apply for an ABN and use it for all business dealings
  
• must be registered for GST if annual GST turnover is $75,000 or more
  
• may be liable to pay tax depending on the wording of its deed and whether any income the trust earns is distributed to its beneficiaries
  
• may be able to access small business tax concessions
  
• must pay super for any of its employees (this may include the trustee if they are also employed by the trust).

Who pays income tax?

While a trust must lodge an annual tax return, whether the trust pays tax (or not) is determined by how the trust income is distributed:

• if all trust income is distributed to adult resident beneficiaries, the trust is not liable to pay tax – each beneficiary reports the income in their own tax return
  
• if all or part of the net trust income is distributed to non-residents or minors, the trustee is assessed on that share on behalf of the beneficiary – these beneficiaries may need to declare their share of the trust’s net income in their own income tax returns, and can claim a credit for the tax paid on their behalf by the trustee
  
• where the trust accumulates net trust income (does not distribute it), the trustee is assessed on that accumulated income at the highest individual tax rate.
  

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