Trust

Trust explained

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. Use our step-by-step guide below to determine if a trust is the right business structure for you.

Step-by-step: choose the best business structure for you

Key factors to consider

Tax registrations

• Tax File Number : A trust must have its own Tax File Number (TFN) to use when lodging its annual tax return -  the trustee needs to apply for it on the Australian Business Number (ABN) application form. 

• Australian Business Number: If the trust is carrying on an enterprise in Australia, the trustee must register for an Australian Business Number (ABN) for the trust.

• Goods and Services Tax: If the trust is carrying on an enterprise, and its turnover is over $75,000 or more, it must register for Goods and Services Tax (GST). For non-profit organisations, the registration threshold is $150,000.

Employing people

• If a trust employs people, the trustee will have responsibilities, such as employee payroll tax and PAYG (including reporting and paying tax on fringe benefits) and superannuation payments for any eligible employees.

Distribution of income, and 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're considering using this structure, you'll 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 the right choice, you'll need to:

1. decide if you want to register your business name – this is only needed if you're using a name other than your personal name
2. check that your proposed business name doesn't infringe on existing trademarks
3. register a business name  
4. get your solicitor to draw up a Trust Deed
5. apply for the relevant licences and registrations.