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  • Trust

    Setting up a trust can be expensive as a formal deed is required outlining how the trust will operate and there are formal yearly administrative tasks for the trustee.

    A trustee is legally responsible for the operation of the trust. The trustee can be an individual or a company. Profits from the trust go to beneficiaries.

    Key features

    If you use a trust for your business structure, the trust:

    • 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).

    Who pays income tax?

    While a trust must lodge an annual tax return, whether the trust pays tax (or not) is determined by how the trust income is distributed:

    • if all trust income is distributed to adult resident beneficiaries, the trust is not liable to pay tax – each beneficiary reports the income in their own tax return
    • if all or part of the net trust income is distributed to non-residents or minors, the trustee is assessed on that share on behalf of the beneficiary – these beneficiaries may need to declare their share of the trust's net income in their own income tax returns, and can claim a credit for the tax paid on their behalf by the trustee
    • where the trust accumulates net trust income (does not distribute it), the trustee is assessed on that accumulated income at the highest individual tax rate.

    Personal services income

    If you have a trust structure and the income the trust receives is mostly for your personal efforts, skills or expertise, you need to work out if the personal services income (PSI) rules apply. If the PSI rules apply, the income will be treated as your individual income for tax purposes. This will also affect the deductions you can claim.

    See also:

    Last modified: 10 Nov 2016QC 31773