What is a Trust?

A trust is a legal relationship in which a person or company (the 'trustee') holds an interest in property on behalf of someone else. The trustee is subject to an equitable obligation to use or keep the property for the benefit of another person (the 'beneficiary').
There are a number of different kinds of trusts. In a discretionary trust, for example, the trustee is able to exercise discretion as to who the beneficiaries are, and what proportion of the trust funds and/or income they are to receive. A non-discretionary trust is one where the trustee is not required to exercise any discretion as to what beneficiaries should receive. Instead, beneficiaries may be pre-determined, and their entitlement is always distributed in proportion to their unit holding (in the case of a unit trust) or other interest in the trust.

Advantages

• With a company as trustee - limited liability.
• Asset protection - assets are sheltered within the trust.
• In the case of a discretionary trust - flexible tax planning with the ability to distribute income and profits to family and other entities.
• In the case of a unit trust - flexible tax planning with the ability to issue income units and ordinary or capital units to different people, depending on their financial situation.
• Distributions from trusts do not attract Workcover and SGC.
• Capital Gains Tax discounting flows through to beneficiaries.
• Can distribute to a company, and thereby take advantage of company tax rates

Disadvantages

• Without a company as trustee - an individual trustee may be fully liable for the debts of the trust.
• Cost of maintenance.
• Constantly changing legislation.
• As opposed to a company structure - where the beneficiaries have significant other income, tax is paid at the beneficiaries' higher level thereby potentially losing the benefit of the 30% company rate (unless one of the beneficiaries is a company).
• A trust loses the Land Tax threshold if it owns property.
• In the case of a unit trust - Capital Gains Tax issues when issuing and redeeming units in the trust.

Compliance Requirements

• ABN registration (if applicable).
• Tax File Number registration.
• GST registration (if applicable).
• BAS - monthly or quarterly, if registered for GST.
• Tax Return - yearly.
• Financial records - financial accounts, balance sheet and profit and loss statement.

General Comments

A trust has a semi-permanent existence and can also be created by the will of a person who has died. Trusts should only be established after careful consideration of your circumstances. Trusts do not come as a "one size fits all" but need to be customised to individual circumstances.