Bulletin Series: Structuring for Small Business Part 5 – Trust

June 29, 2018

Trusts and small business 
A trust structure for small business involves the trustee of the trust carrying on the business for the benefit of the beneficiaries of the trust.  The trustee can either be an individual or a company. For more information about a company, read of our company structure for small business publication.

There are different types of trusts.  The most common one for small business is a discretionary trust.

Some important aspects for you to consider if you are thinking about a trust structure for your small business are:

Control
The day to day decisions for the business are made by the trustee.

The trustee of a trust, and therefore control of a trust, can generally be changed without incurring any tax or stamp duty.

We generally recommend the trustee be a company as it can be quite disruptive to the business if an individual trustee dies or loses capacity.

Taxation
The profit of a business conducted by a trust is distributed to the beneficiaries.The beneficiary must include this income in their own personal tax returns.

The trust structure creates flexibility for the trustee to distribute the business income to the beneficiary/ies who is/are in the best positions to manage the tax on the income, including other trusts or companies.

Costs
There are costs involved to establish the trust structure, these costs will vary depending on whether or not you are appointing a corporate trustee or not. There are also ongoing administrative and accountancy fees for a trust structure.

If you are concerned about the initial start-up costs, we are happy to discuss these with you, it is important for you to weigh up the initial start-up costs in comparison with benefits the trust structure offers. The start-up and ongoing costs might be insignificant in the bigger picture when weighing up the taxation, flexibility of income distribution and asset protection advantages.

Risk
The risks associated with the business (for example incurring debts) lie with the trust, therefore the beneficiaries’ personal assets are protected. In some circumstances the trustee can be liable, this is why we would usually recommend a corporate trustee to further protect the personal assets of those involved with the business.

Your personal circumstances will depend on which business structure is most suitable for you. To find out more and to receive advice about which structure is best for your business, please contact our commercial team on 07 4671 6000.

In our next bulletin we will discuss about Restructuring your Business.

To review Part 1 of this bulletin series, click here – Overview of Different Structure Types

To review Part 2 of this bulletin series, click here – Sole Trader

To review Part 3 of this bulletin series, click here – Partnership

To review Part 4 of this bulletin series, click here – Company