Trusts are highly complex structures that can be very costly to set up but afford the ability to have certain tax advantages and fewer reporting requirements than a company.
How a trust works begins with the trust deed, which is a formal document created to specify the responsibility of the trustee and the rights of the beneficiaries. The trustee’s role is to look after and manage the trust so that its income can be distributed to its beneficiaries. The trust deed can stipulate exactly how this distribution occurs, which provides a great degree of flexibility in how the trust’s income is taxed. For example, depending on the deed, the trust may not be taxed at all until its income is actually distributed, at which point the beneficiaries will be taxed at their respective personal tax rates, which may be lower than the corporate tax rate, allowing tax savings on that income.
As great as these benefits sound, running a trust requires a lot of work. Like a company, you should consult accountants and financial advisors to set one up to meet your specific needs. For example, if you want your business structure to benefit different members of your family, who have different individual tax rates, then a trust will provide you with the flexibility to maximise tax savings on the income you distribute. Key features: 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).