What are the advantages and disadvantages of operating a business / investment using a Discretionary Trust?

14 September 2014

Admin User

Also known as a Family Trust, it is essentially a relationship that is set out by a trust deed between a trustee and a beneficiary or beneficiaries.

The trustee is given the duty of holding property on behalf of the beneficiaries.

A Trust unlike other accounting and taxation entities separates the legal ownership of property and the beneficial (equitable) ownership.

The different roles / parties in a family trust include:

  • The Settlor
  • The Trustee
  • The Appointor
  • The Beneficiaries
  • The Trust Fund
  • The Trust Deed


1.    Flexible in the distributions of income and capital.

2.    Asset protection can be achieved through appointment of a corporate trustee (XXX XXX Pty Ltd).

3.    The trustee (usually the directors) have discretion as to where the income is distributed.

4.    CGT discounts and other concessions are available.

5.    Makes succession planning easier.

6.    There is no superannuation payable on trust distributions.

7.    There are no WorkSafe Premiums or Payroll Tax payable on trust distributions.

8.    Unlike payments made from companies and individuals the is no commercial basis that needs to be applied.


1.    More expensive to setup.

2.    The rules of the trust deed must be adhered to.

3.    If the income is not distributed to a beneficiary then the trustee will be subject to the top marginal rate.

4.    Losses can not be passed onto beneficiaries; they are carried forward in the trust.

5.    An ‘interest’ or ‘share’ can not be sold, or transferred in a trust.

6.    Beneficiaries will be taxed at marginal rates.

7.    Not a separate legal entity.

8.    Minutes and resolution need to be completed by the end of June; otherwise the trustee will be eligible for the tax at the top marginal rate.


If you would like to discuss further please contact us:
McNamara and Co - Chartered Accountants, located minutes from the Melbourne CBD
Phone +61 3 9428 1062
Email admin@mcnamaraandco.com

Please refer to disclaimer at the bottom of the page.


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