Running a Business Through a Family Trust: How It Works
Family trusts (technically, discretionary trusts) run a huge share of Australia's small businesses, and for good reason: they can spread income across the family, protect assets and still claim the 50% CGT discount. They're also the most misunderstood structure going, and the one where DIY mistakes cost the most. Here's how they actually work, what they cost, and how the proposed 30% minimum tax on trusts from 2028 changes the maths. If you're still comparing structures broadly, start with sole trader, company or trust.
The moving parts of a family trust
A trust isn't a legal entity like a company. It's a relationship: the trustee holds and runs assets — including a business — for the beneficiaries, under rules set out in the trust deed.
| Role | Who they are | What they do |
|---|---|---|
| Settlor | Usually an unrelated person, often your accountant or lawyer | Creates the trust by gifting a nominal sum (typically $10) and then steps away permanently |
| Trustee | An individual, or more commonly a company you set up | Legally owns the assets, runs the business, signs contracts, decides distributions |
| Appointor | Usually you | Can hire and fire the trustee — the real power in the structure |
| Beneficiaries | Your family group, defined broadly in the deed | Can receive distributions of income and capital, but have no fixed entitlement |
One note on the settlor: they must have nothing further to do with the trust and should never be a beneficiary — nasty tax consequences follow if they are. That's why an accountant or lawyer normally plays the role.
Individual vs corporate trustee
The trustee is personally liable for the trust's debts (with a right to be reimbursed from trust assets — which only helps if there are enough assets). If you're the individual trustee of a trading trust and the business gets sued, your personal assets are exposed, which defeats a big part of the point.
That's why nearly every accountant recommends a corporate trustee: a company, usually with you as sole director and shareholder, whose only job is being trustee. Its limited liability walls business liabilities off from your personal assets, and succession is cleaner because the company doesn't die. It costs more, but for a trading business it's close to non-negotiable. Our company structure guide covers how companies work in detail.
How the tax side works
A trust generally pays no tax itself. Each year before 30 June the trustee resolves to distribute the trust's income among the beneficiaries, and each beneficiary pays tax on their share at their own marginal rate.
Because the trust is discretionary, the trustee can vary who gets what every year — the core tax appeal. If the business makes $160,000 profit, the trustee might distribute $80,000 to you and $80,000 to your part-time-working spouse: two sets of tax brackets instead of one. Distributions to adult family members on low incomes (an adult child at uni, a retired parent) can soak up their tax-free thresholds and lower brackets too.
Two big caveats:
- The beneficiary must genuinely be entitled to the money. Distributing on paper to a low-income relative while the cash stays with you is exactly what section 100A of the tax law targets, and the ATO actively pursues these arrangements. Penalties are severe.
- Distribution resolutions must be made by 30 June each year and properly documented. Miss it and the trustee can be taxed on the lot at the top rate (more below).
Many trusts also make a family trust election, which locks distributions to a defined family group but unlocks benefits like carrying forward losses and passing on franking credits — another deed-and-paperwork detail for your accountant to manage.
The 2028 trust tax changes: read this before you set one up
In the May 2026 Federal Budget, the government announced a 30% minimum tax on discretionary trusts, proposed to start 1 July 2028. Broadly, the trustee would pay 30% tax on the trust's taxable income up front; beneficiaries would still declare distributions and receive a non-refundable credit for the tax already paid. A beneficiary on a marginal rate above 30% pays top-up tax; one below 30% loses the excess credit — which blunts the classic strategy of distributing to low-income family members. A restructuring rollover window for eligible small businesses is proposed from 1 July 2027.
As at August 2026 this is an announcement, not law, and details will likely change. But if you're weighing up a new trust today, your modelling needs to include a world where distributions below the 30% line stop saving tax. More than anything else on this page, this is why you need current professional advice.
What it costs
Verify current fees before you commit, but as at August 2026 the ballpark looks like this:
| Item | Typical cost |
|---|---|
| Trust deed prepared and structure set up (with corporate trustee) | $1,500–$3,000, sometimes more through a law firm |
| ASIC company registration for the corporate trustee | $636 (as at August 2026) — check current fee on asic.gov.au |
| Stamp duty on the deed | NSW $750, Vic $200, NT and Tas $20, nil in Qld, WA, SA and ACT (as at August 2026) |
| ASIC annual review fee for the trustee company | $342 per year (as at August 2026) |
| Annual accounting and tax work | Commonly $2,000+ per year for a trading trust; more with a corporate beneficiary in the mix |
A trading trust also needs its own ABN, TFN and usually GST registration — see how to register an ABN. The ongoing accounting bill is the one people underestimate: financial statements, a trust tax return, distribution minutes every June, plus the trustee company's obligations.
Asset protection: strong, but not bulletproof
Trust assets don't belong to you personally. If you go bankrupt, they're generally beyond your creditors' reach, and beneficiaries have no fixed entitlement a creditor can seize. With a corporate trustee, a lawsuit against the business hits the trustee company and trust assets, not your house. That's genuinely valuable in a claim-prone trade.
The limits matter just as much:
- Personal guarantees cut straight through. Banks and landlords will usually make you guarantee trust debts personally.
- The Family Court looks through trusts. In a divorce, a trust you control is routinely treated as a resource of the relationship.
- Clawback rules exist. Moving assets into a trust to defeat existing creditors can be unwound under bankruptcy law.
- Unpaid entitlements are assets. Distributions you were owed but never took are a debt owed to you — and your creditors can pursue it.
The downsides nobody mentions at the barbecue
Losses get trapped
A trust can distribute profits, but never losses. If the business loses money, the loss stays in the trust, carried forward against future trust income only — and only if strict trust loss rules are met. If you expect early losses, a trust is usually the wrong vehicle: a sole trader can often offset business losses against other income, subject to the non-commercial loss rules. Compare the sole trader structure before you decide.
Undistributed income is taxed at the top rate
If the trustee fails to distribute income by 30 June — no valid resolution, sloppy paperwork, a deed that doesn't allow it — the trustee is assessed at the top marginal rate of 45% plus 2% Medicare levy. That's 47 cents in the dollar for an administrative slip, which is why distribution minutes are a hard June deadline in every accountant's calendar.
Distributions to minors are punished
Distributing to your kids sounds clever until you see the rates. For a beneficiary under 18, only the first $416 a year of trust income is tax-free; from $417 to $1,307 a 66% band applies, and above $1,307 the whole amount is taxed at the top marginal rate of 45% (as at August 2026). Splitting income to children ended decades ago — distributions to adult beneficiaries are where the planning lives.
Corporate beneficiaries and Division 7A
A common move is distributing to a "bucket company" beneficiary so profits are taxed at the company rate (25% for most small business companies) instead of high personal rates. The catch has always been Division 7A: rules that can treat money left in the trust rather than actually paid to the company as a deemed unfranked dividend — taxable, with no credits.
The landscape shifted in June 2026 when the High Court's Bendel decision confirmed an unpaid present entitlement to a corporate beneficiary is not a "loan" for Division 7A purposes, rejecting the ATO's 16-year-old position. That doesn't make bucket companies a free kick: other anti-avoidance provisions (section 100A, Subdivision EA, Part IVA) still apply, the government may legislate in response, and actual loans back from the company still need complying Division 7A terms (benchmark interest rate 8.77% for 2026–27). This corner of trust planning is moving fast, and it is strictly accountant territory.
The CGT discount: a real advantage
Trusts can access the 50% CGT discount on assets held longer than 12 months, with the discount flowing through to individual beneficiaries. Companies get no discount at all. If your business will build a valuable asset — goodwill, property, a brand you might one day sell — this is one of the strongest arguments for a trust over trading through a company directly. The small business CGT concessions can stack on top, but the eligibility rules are intricate: get advice well before any sale.
When a trust makes sense — and when it doesn't
Worth serious consideration when:
- The business is reliably profitable and you have a genuine family group — spouse, adult children, lower-income relatives — to distribute to (noting the proposed 2028 changes)
- Asset protection matters: you're in a claim-prone industry or hold significant personal assets
- You're holding appreciating assets and want the 50% CGT discount with distribution flexibility
- You're planning succession across a family
Usually the wrong call when:
- You expect losses in the early years — they'll be trapped
- You're a solo operator with no one to distribute to — you'll pay for complexity that delivers nothing
- You want simplicity and low running costs — sole trader or a straightforward company will serve you better
- Profits are modest — the accounting fees can eat the tax saving whole
Key takeaways
- A family trust is a relationship, not an entity: a trustee (ideally corporate) runs the business for beneficiaries under a trust deed, with the appointor holding ultimate control.
- The tax appeal is discretionary distributions to lower-taxed adult beneficiaries — but they must be real, resolved by 30 June and documented, or the trustee pays 47%.
- Budget roughly $1,500–$3,000 to set up with a corporate trustee, plus ASIC fees and ongoing accounting in the low thousands each year.
- Distributions to under-18s cop penalty rates above tiny thresholds, and losses can never be distributed out of a trust.
- The proposed 30% minimum tax on trusts from 1 July 2028, plus the post-Bendel Division 7A reset, mean trust strategy is shifting right now.
- None of this is a DIY decision — model it with your accountant against your actual numbers before spending a cent.
Where to get help
- Your accountant — the non-negotiable first stop for structure advice, distribution planning and the 2028 changes. Not sure who does what? See bookkeeper, BAS agent or accountant.
- ATO — Trusts — how trusts are taxed, trustee obligations, current rulings.
- business.gov.au — Business structures — plain-language structure comparisons.
- ASIC — registering a corporate trustee and current company fees.
- Tax Practitioners Board — check your accountant or tax agent is registered.
General information only. This guide doesn't take your personal or business circumstances into account and isn't financial, legal or tax advice. Rates and thresholds change — confirm current figures with ato.gov.au or your accountant before acting.