On this page
- What a trust is
- Key factors for choosing this structure
- Register as a trust
A trading trust is usually an entity that holds property (capital) for certain beneficiaries. This type of business structure is formed when a gift or settlement is made to a trustee (a person or a company) on behalf of a yet-to-be-formed trust. A solicitor then draws up a Trust Deed setting out the trust's powers and formalising its administration.
While there may be ease of succession in a trust business structure, trading trusts are a complex and expensive business structure and are subject to higher compliance costs.
Key factors to consider
Tax File Number (TFN)
A trust must have its own TFN to use when lodging its annual tax return - the trustee needs to apply for it on the ABN application form.
Australian Business Number (ABN)
If the trust is carrying on an enterprise in Australia, the trustee must register for an ABN for the trust.
Goods and Services Tax (GST)
If the trust is carrying on an enterprise, and its turnover is over $75,000 or more, it must register for GST. For non-profit organisations, the registration threshold is $150,000.
If a trust employs people, the trustee will have responsibilities, including employee payroll tax and PAYG (including reporting and paying tax on fringe benefits) and superannuation payments for any eligible employees.
Distribution of income, taxation
Rather than shareholders, a trust has beneficiaries who are entitled to distributions of capital and/or income. These distributions are controlled by the trustee and form part of a beneficiary's personal income, subject to income tax and provisional tax.The ATO has more information on how a trust can file its tax returns.
Winding up a trust
A trust can be wound up and the assets distributed, but only where there is consent of the beneficiaries. Where beneficiaries are specified as a class (which is usual), or are children, it can be difficult to obtain consent.
If you are considering using this structure, you will need to carefully consider the relevance of any tax savings and the potential difficulties involved in winding up.
Register as a trust
After considering the pros and cons, if you decide that starting a trust is right for you, you will need to:
- decide if you want to register your business name - this is only needed if you are using a name other than your personal name
- check that your proposed business name doesn't infringe on existing trademarks - use TM Check to find out
- register a business name
- get your solicitor to draw up a Trust Deed
- apply for the relevant licences and registrations