A discretionary (family) trust is one of Australia’s most powerful structures for income splitting, asset protection, and long-term wealth planning. We handle the full trust deed, ABN, TFN, and ATO registrations — and ensure your structure is set up to work from day one.
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A discretionary trust (commonly called a family trust) is a legal arrangement where a trustee holds and manages assets on behalf of a group of beneficiaries. The key feature is discretion — the trustee has the power to decide each year how much income (and capital) to distribute to each beneficiary, and to whom. No beneficiary has a fixed entitlement until the trustee exercises that discretion.
The trust itself is not a separate legal entity like a company — it is a relationship between the trustee and the beneficiaries, governed by the trust deed. The trust deed is the foundational document that sets the rules for how the trust operates, who the beneficiaries are, and what powers the trustee holds.
Each year the trustee can distribute income to different beneficiaries in varying amounts — allowing income to flow to family members in lower tax brackets and minimise the overall tax paid.
Assets held in a correctly structured trust are generally protected from the personal creditors of individual beneficiaries. The trust owns the assets — the beneficiaries do not.
A trust can hold assets across generations, making it a powerful vehicle for long-term wealth transfer, succession planning, and protecting family assets from relationship breakdowns.
Trusts are widely used by Australian small business owners, professionals, and families who want to combine tax efficiency with long-term asset protection. Here is what makes the discretionary trust structure particularly powerful.
The trustee can distribute income each year to any beneficiary named in the trust deed — a spouse, adult children, or related entities. By directing income to beneficiaries in lower tax brackets, the combined family tax bill is often significantly reduced. For example, distributing $80,000 to a spouse with no other income saves approximately $18,000+ in tax compared to a sole trader receiving the same profit.
When a trust holds assets for more than 12 months, it can access the 50% CGT discount on disposal. This means only half of the capital gain is assessable income. The discounted gain can then be distributed to beneficiaries in the most tax-effective way, providing a significant advantage over companies (which do not access the 50% CGT discount).
Assets held in a trust are generally not available to the personal creditors of individual beneficiaries. This makes the trust a strong shield for business operators who face professional liability — keeping personal and family wealth separate from business risk. Note: the protection does not extend to the trustee’s own creditors if an individual trustee is used.
Using a company as the trustee (rather than an individual) adds another layer of asset protection. The company’s limited liability shields the directors from personal liability for trust debts. A corporate trustee also provides continuity — the trust continues operating without interruption even if a director changes. This is the structure most accountants recommend for serious wealth planning.
Setting up a trust correctly requires more than a standard deed — the trust deed must reflect your specific objectives, and all registrations must be done in the right order. We manage the entire process.
Your trust setup includes everything below, handled end-to-end:
The trust itself does not pay income tax as an entity. Instead, the net income of the trust is distributed to beneficiaries, who each include their share in their own tax return and pay tax at their individual marginal rate. The trustee’s discretion over distributions makes this structure the most flexible for tax planning.
The trust lodges an annual trust tax return calculating net income — total income less allowable deductions. The trust itself pays no tax on this amount. All tax liability flows to the beneficiaries who receive distributions.
The trustee must pass a valid distribution resolution before 30 June each year. If no resolution is passed, the entire net income of the trust is taxed to the trustee at the top marginal rate of 45% (plus 2% Medicare Levy). This is one of the most critical compliance obligations for trust operators.
Must be completed before 30 JuneEach beneficiary declares their share of trust income in their personal tax return. 2025–26 individual rates: $0–$18,200 (nil), $18,201–$45,000 (16c), $45,001–$135,000 (30c), $135,001–$190,000 (37c), $190,001+ (45c), plus 2% Medicare Levy. Distributing to beneficiaries in lower brackets reduces the total family tax burden.
2025–26 ATO ratesSection 100A of the Tax Act allows the ATO to recharacterise a trust distribution as a deemed dividend if there is a “reimbursement agreement” — that is, if a beneficiary receives a distribution on paper but the economic benefit is actually enjoyed by someone else. The ATO has significantly increased its focus on Section 100A in recent years. We advise on compliant distribution strategies as part of every trust setup and ongoing compliance.
ATO focus area — must be managed correctlyIn a discretionary trust, the trustee decides each year how to distribute income among the beneficiaries — no beneficiary has a fixed entitlement. In a unit trust, each unitholder holds a fixed percentage of the trust, similar to shares in a company. Unit trusts are more commonly used for joint venture arrangements or investment properties where fixed ownership proportions are required. Discretionary trusts are preferred for family business and income-splitting purposes.
Both are legally permitted, but a corporate trustee (a company established solely to act as trustee) is generally recommended. The main advantages are: the company’s limited liability protects directors from personal liability for trust debts; the trust continues uninterrupted if a director changes; and it is cleaner from an asset protection standpoint. We advise on the trustee structure as part of the consultation and can set up the trustee company alongside the trust.
Section 100A is an ATO anti-avoidance provision that can apply when a trust distributes income to a beneficiary but the economic benefit is actually enjoyed by someone else under an arrangement. If it applies, the ATO can disregard the distribution and tax the trustee at the top rate. The ATO significantly increased its focus on Section 100A from 2022 onwards. Correct distribution documentation and genuine economic benefit to beneficiaries are essential to avoid exposure.
Trust setup costs vary depending on whether a corporate trustee company is required and the complexity of the deed. Our fee for the complete setup — trust deed, ABN, TFN, GST assessment, and advisory — is quoted upfront in your service proposal following the AUD $250 consultation. There are no hidden costs.
The trust itself does not pay income tax on distributed income — each beneficiary pays tax on their allocated share at their own marginal rate. However, if the trustee fails to pass a valid distribution resolution before 30 June, the undistributed income is assessed to the trustee at the top marginal rate of 45% (plus 2% Medicare Levy). Minors who receive trust distributions are taxed at penalty rates under the minor beneficiary rules.
Yes. Trusts are commonly used to hold business assets, investment properties, shares, and other investments. The trust (through its trustee) enters contracts, employs staff, and holds legal title to assets. This structure separates the ownership of assets from the operators of a business — a key feature for asset protection planning.
The right answer depends on your specific situation. Trusts offer more flexibility for income splitting among family members and access to the 50% CGT discount — but companies offer a flat 25% tax rate, which is better for retained earnings and reinvestment. Many sophisticated structures combine both: a discretionary trust owning the shares in a company. We compare these structures in detail during the consultation and recommend what suits your goals.
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