Guides & Resources
What Is a Trust in Australia and Should Your Business Use One?
What is a trust in Australia, and should your business use one?
Learn how trusts work, tax benefits, and key pros and cons in this simple guide.
Running a business in Australia often means thinking beyond day-to-day operations. At some point, many business owners start asking bigger questions about structure, tax planning, asset protection, and long-term wealth strategy. One of the most common structures that comes up in these conversations is a trust.
But what exactly is a trust, how does it work in Australia, and is it the right choice for your business?
At Latitude Accountants, we regularly help business owners understand whether a trust structure suits their goals. The truth is — trusts can be powerful, but they’re not for everyone. This guide breaks it down in simple terms so you can make informed decisions with confidence.
What Is a Trust in Australia?
What does a trust actually mean in business?
A trust is a legal arrangement where one party (the trustee) holds and manages assets on behalf of others (the beneficiaries).
In Australia, a trust is commonly used for:
- Running a business
- Holding investment assets
- Protecting family wealth
- Managing income distribution
The key idea is simple: the trustee controls the assets, but does not personally own them — they must manage them for the benefit of the beneficiaries.
How Does a Trust Work?
How does a trust operate in Australia?
A trust involves three key roles:
- Settlor
The person who creates the trust (usually a small initial amount is used to establish it). - Trustee
The person or company that legally controls and runs the trust. - Beneficiaries
The individuals or entities who benefit from the trust income or assets.
In practice, the trustee runs the business or investments, but any profits are distributed to beneficiaries according to the trust deed.
Why Do People Use Trusts in Australia?
Why would a business choose a trust structure?
Trusts are popular because they can offer:
- Flexible income distribution
- Potential tax planning advantages
- Asset protection
- Estate planning benefits
- Separation of personal and business assets
However, these benefits depend heavily on how the trust is structured and managed under Australian Taxation Office (ATO) rules.
What Types of Trusts Are Used in Australia?
What are the common types of trusts?
The most common trusts include:
- Discretionary Trust (Family Trust)
The trustee has discretion over how income is distributed to beneficiaries. This is the most widely used structure for small and medium businesses. - Unit Trust
Beneficiaries hold fixed “units” similar to shares. Profits are distributed based on ownership percentage. - Hybrid Trust
A mix of discretionary and unit trust features (less common and more complex). - Testamentary Trust
Created through a will and activated after death for estate planning purposes.
Should Your Business Use a Trust?
Should I set up a trust for my business in Australia?
It depends on your goals, income level, and risk profile. A trust may be suitable if you:
- Run a family business
- Want to distribute income to multiple family members
- Hold investment properties or assets
- Are focused on asset protection
- Have fluctuating business income
However, trusts are not always the best option. For example, if you are a sole trader with simple operations, a trust may add unnecessary complexity and cost.
Advantages of Using a Trust
What are the benefits of a trust in Australia?
1. Income Flexibility
Trusts allow income to be distributed to different beneficiaries, which may help with tax planning.
2. Asset Protection
Assets held in a trust are generally separate from personal ownership, offering protection in some legal situations.
3. Estate Planning
Trusts can help control how wealth is passed on to family members.
4. Business Structuring
They can separate ownership and control, which may be useful for partnerships or family businesses.
Disadvantages of a Trust
What are the downsides of a trust?
Trusts are not perfect. Common disadvantages include:
- Higher setup and ongoing accounting costs
- More complex compliance requirements
- Strict ATO rules and trust deed limitations
- Annual resolutions required for income distribution
- Potential tax disadvantages if not managed properly
A poorly structured trust can actually increase tax or compliance risk.
How Are Trusts Taxed in Australia?
How does tax work in a trust?
Trusts are generally “flow-through” entities. This means:
- The trust itself usually does not pay tax
- Income is distributed to beneficiaries
- Beneficiaries pay tax at their own individual tax rates
If income is not distributed, the trust may be taxed at the highest marginal rate.
This is why proper planning is essential.
Do Trust Rules Differ Between States?
Are trusts different in each Australian state?
Trust law is generally consistent across Australia because it is based on federal tax legislation and common law principles.
However:
- Stamp duty rules
- Land tax thresholds
- State-based surcharges
may differ between states such as New South Wales, Victoria, Queensland, and others.
Trust vs Company: What’s the Difference?
Is a trust better than a company?
Not necessarily — they serve different purposes.
Company:
- Separate legal entity
- Pays corporate tax rate
- Profits belong to shareholders
Trust:
- Income flows to beneficiaries
- Trustee controls assets
- Flexible income distribution
Many businesses actually use both structures together.
Can a Trust Own a Business?
Can I run a business through a trust in Australia?
Yes. Many Australian businesses operate under a discretionary trust structure.
The trustee (individual or company) runs the business, signs contracts, and manages operations on behalf of the trust.
What Records Does a Trust Need?
What compliance does a trust require?
Trusts must maintain:
- Trust deed
- Financial statements
- Income distribution resolutions
- Tax returns
- Bank and transaction records
Proper accounting is essential to meet ATO requirements.
Common Questions About Trusts
What is a trust in simple terms?
A trust is a legal structure where someone manages assets for the benefit of others.
Do trusts pay tax in Australia?
Usually no — income is taxed in the hands of beneficiaries.
Is a family trust the same as a discretionary trust?
Yes, in most cases a family trust is a discretionary trust used for family income distribution.
Can a trust reduce tax?
It can help with tax planning, but it does not automatically reduce tax.
Is a trust better than a company?
It depends on your business goals and structure.
Can anyone set up a trust in Australia?
Yes, but it should be done with legal and accounting advice.
Do trusts protect assets?
They can offer protection, but it depends on structure and legal circumstances.
How much does it cost to run a trust?
Costs vary depending on complexity and accounting requirements.
Common Mistakes with Trusts
What do people get wrong with trusts?
Some common issues include:
- Incorrect income distribution resolutions
- Poor record keeping
- Not understanding trust deed rules
- Assuming trusts automatically reduce tax
- Mixing personal and trust expenses
These mistakes can lead to ATO issues or penalties.
The Latitude Way: Helping You Structure It Right
At Latitude Accountants, we help business owners understand whether a trust structure is suitable — and if it is, we ensure it is set up and managed correctly.
We focus on:
Clear Advice
No jargon — just practical explanations of what works best.
Correct Structure Setup
Ensuring your trust aligns with ATO rules and your business goals.
Tax Efficiency Planning
Helping you understand how income flows and is taxed.
Ongoing Compliance
Keeping your trust by reporting accurately and up to date.
Final Thoughts: Is a Trust Right for You?
A trust can be a powerful structure for Australian business owners — but only when used correctly and for the right reasons.
It is not a one-size-fits-all solution.
The best structure depends on your income, risk exposure, family situation, and long-term goals.
That’s why professional advice is essential before making any decision.
Ready to Find Out If a Trust Is Right for Your Business?
If you’re considering a trust or already operating under one, getting the structure right can make a significant difference to your tax position and long-term financial security.
At Latitude Accountants, we help Australian business owners make smart structural decisions with confidence — The Latitude Way.
Contact Latitude Accountants today:
📍 Sydney Olympic Park | Marrickville | Melbourne | Loxton
📞 1300 706 597
📧 info@latitudeaccountants.com.au
Disclaimer
This article is for general information only and does not constitute tax, legal, or financial advice. You should seek personalised advice from a qualified accountant before making decisions about business structures.
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