Business Structure - Trusts

Choosing a business structure when starting up a business is an important element of the setup phase.

Business structure is important as it can impact on taxation, liability of owners, succession, ownership issues and disposal of your business.

Trust is a relationship where a business is transferred to a third party (trustee) who has legal control and has a duty to operate that business to benefit someone else (beneficiaries).

Traditionally, trust structures provided taxation benefits and asset protections. However, many of the tax benefits associated with trust structures have been eliminated or substantially reduced by legislation. But in recent time, case law has imposed some challenges in relation to asset protection. For that reason, it is recommended to seek separate legal advice in relation to setting up certain trusts.

There are also many variations of trusts intended for various purposes, for example, discretionary trusts, unit trusts, hybrid trusts, bare trusts and installment warrants. Various legal experts write trust deeds which are sold through various suppliers. Accordingly, trust deeds can vary in wording and intention, with some authors claiming their product as superior to others.

Features of trust include:
  • asset protection of business owners/operators (with increasing limitations)
  • flexibility in relation to distribution of income and subsequent taxation benefits
  • beneficiaries generally not liable for debts of a business
  • trust deed can limit activities
  • high costs of setup and maintenance
  • higher degree of complexity for business owners
  • increasing regulations in relation to ownership and management
  • losses of a trust can not be distributed to beneficiaries
  • retention of profits in a trust can attract taxation penalties
The ATO's Personal Services Income (PSI) regulations can impact on labour only type business operations. Advice should be obtained from a registered tax agent or practicing accountant.

For a FREE fact sheet ==> Trust Business Structure

For a summary of the four types of business structures ==> Business Structures Explained

Copyright 2014. My Tax Zone.