Setting up a trust in Australia can be an effective strategy for asset protection, estate planning, tax management, and wealth distribution. However, it’s not as simple as just signing a document; it involves understanding various trust structures, legal requirements, tax implications, and ongoing compliance responsibilities. This guide explores everything you need to know about trust setup in Australia and provides a step-by-step overview of how to establish one effectively.
What is a Trust?
A trust is a legal relationship where one party, known as the trustee, holds property or assets for the benefit of others, called beneficiaries. The person who creates the trust is referred to as the settlor. Trusts are governed by trust deeds and are subject to state and territory laws across Australia.
Types of Trusts in Australia
1. Discretionary Trusts
Often used by families and small businesses, discretionary trusts give the trustee the discretion to determine how the income or assets are distributed among the beneficiaries.
2. Unit Trusts
In a unit trust, beneficiaries (unit holders) have fixed interests, similar to shareholders in a company. This structure is common in joint ventures and property investments.
3. Hybrid Trusts
Combining elements of both discretionary and unit trusts, hybrid trusts allow fixed and discretionary distributions. They offer flexibility but are more complex to administer.
4. Testamentary Trusts
Created through a will and effective after the settlor’s death, testamentary trusts offer tax benefits for minors and asset protection for family members.
5. Special Disability Trusts
These are specifically designed for the care and accommodation of people with severe disabilities and have unique tax and asset implications.
Why Consider Trust Setup in Australia?
Setting up a trust can offer several strategic advantages:
- Asset Protection: Trusts can protect assets from creditors, lawsuits, or in family law proceedings.
- Tax Planning: Trusts allow income splitting among beneficiaries, which may reduce overall tax liability.
- Estate Planning: Trusts provide more control over the distribution of your estate than a traditional will.
- Business Structure: A trust can be used to run a business, offering tax efficiency and limited liability.
Legal Requirements for Trust Setup in Australia
The legal process for trust formation in Australia typically involves the following:
1. Choosing the Type of Trust
The first step is determining which type of trust best suits your objectives — whether for family estate planning, business structuring, or investment purposes.
2. Selecting Trustees and Beneficiaries
You’ll need to appoint a trustee (individual or corporate) who will manage the trust and nominate one or more beneficiaries who will benefit from the trust.
3. Drafting the Trust Deed
The trust deed is a legal document that outlines the rules and responsibilities of the trust, including the powers of the trustee and the rights of beneficiaries. This must be drafted carefully, typically by a legal professional.
4. Appointing a Settlor
The settlor is the individual who establishes the trust and contributes the initial trust property (usually a nominal amount). The settlor cannot be a beneficiary or trustee.
5. Execution of the Trust Deed
All parties including the trustee and settlor must sign the deed. In some states, the document must be stamped by the state revenue office.
6. Applying for an ABN and TFN
To operate legally, trusts in Australia must apply for an Australian Business Number (ABN) and Tax File Number (TFN). This is essential for tax reporting and GST registration if required.
7. Opening a Bank Account
Once the trust is set up, the trustee must open a bank account in the trust’s name to manage its financial transactions.
Trust Formation in Australia: Step-by-Step Guide
Step 1: Define the Purpose
Understand and document the reasons for creating the trust — whether it’s for tax efficiency, asset protection, or succession planning.
Step 2: Get Professional Advice
Seek legal and financial advice to ensure that a trust is the right structure for your needs and that all implications are understood.
Step 3: Choose a Trustee
Decide whether you want an individual trustee (usually a family member or yourself) or a corporate trustee (a company that acts as trustee).
Step 4: Draft the Trust Deed
A legal expert should draft the deed according to the purpose and type of trust.
Step 5: Settle the Trust
The settlor provides a nominal amount to settle the trust. This step legally brings the trust into existence.
Step 6: Sign and Stamp the Deed
The deed is signed and may require stamping, depending on the state or territory. For example, in New South Wales, stamp duty is payable.
Step 7: Register with the ATO
Register the trust for an ABN and TFN. This is done through the Australian Business Register and is essential for tax compliance.
Step 8: Open a Trust Bank Account
Use the trust deed, ABN, and TFN to open a dedicated bank account in the trust’s name.
Step 9: Maintain Ongoing Compliance
Trustees must keep proper records, file annual tax returns, and comply with all regulatory obligations to avoid penalties.
Tax Implications of Trusts in Australia
- Trusts do not pay tax on their income as long as the income is distributed to beneficiaries.
- Beneficiaries pay tax on the income they receive at their marginal tax rate.
- Undistributed income may be taxed at the highest marginal rate.
- Capital gains and franked dividends have specific treatment under trust law and tax regulations.
Common Mistakes in Trust Setup in Australia
- Choosing the wrong type of trust for your goals.
- Failing to understand trustee obligations and liabilities.
- Not updating trust deeds to reflect legal or structural changes.
- Incorrectly distributing income or failing to distribute before year-end.
- Ignoring the need for trust deed stamping where required.
Updating and Managing an Existing Trust
Trust deeds should be reviewed regularly to ensure they remain compliant with current laws and reflect the trust’s operations. If there are changes in trustees, beneficiaries, or objectives, legal amendments might be needed.
When Should You Use a Corporate Trustee?
Using a corporate trustee instead of an individual can simplify record-keeping, reduce personal liability, and provide continuity if individuals leave the arrangement or pass away. This is particularly useful for discretionary trusts used in business.
Trust Setup in Australia for Foreign Residents
Foreign residents can set up trusts in Australia, but there are additional legal and tax considerations, such as:
- Residency status of the trustee.
- Tax treatment of income sourced from Australia vs overseas.
- Compliance with Foreign Investment Review Board (FIRB) regulations for owning property.
Professional advice is essential in these cases to avoid double taxation or non-compliance.
Cost of Setting Up a Trust in Australia
- Legal fees: Drafting a trust deed can cost between $500 and $2,500 depending on complexity.
- Stamp duty: Varies by state; some charge no duty, while others (like NSW) impose fees.
- Ongoing compliance: Annual tax returns, bookkeeping, and legal reviews add to ongoing costs.
Trust vs Company vs Sole Trader: Which to Choose?
| Structure | Liability | Tax Treatment | Compliance Level |
|---|---|---|---|
| Sole Trader | Unlimited | Personal Rate | Low |
| Company | Limited | Flat 30%/25% Rate | Medium |
| Trust | Limited/Varied | Beneficiaries Pay | High |
A trust is suitable for individuals seeking flexibility and tax efficiency, but it requires proper management and planning.
How Ease to Compliance Helps with Trust Setup in Australia
At Ease to Compliance, we specialize in helping individuals, families, and businesses navigate the complex process of trust setup in Australia. From choosing the right trust structure to drafting legally compliant trust deeds and managing registrations, our team ensures every step is handled professionally and efficiently.
Whether you need assistance with trust formation in Australia, taxation advice, or ongoing compliance, our firm are here to support you with end-to-end services tailored to your goals.
Ready to set up your trust? Contact Ease to Compliance today and let our professionals simplify your trust journey in Australia!
FAQs On Trust Setup in Australia
Question 1. Can non-residents set up a trust in Australia?
Answer: Yes, non-residents can establish a trust in Australia, but they must follow specific tax rules and compliance requirements based on their residency.
Question 2. What is the minimum capital to set up a trust in Australia?
Answer: You only need a nominal amount, usually around $10, to start a trust in Australia. There’s no official minimum capital requirement.
Question 3. Can a trust own property in Australia?
Answer: Yes, a trust can purchase and hold property in Australia. Many people use trusts for investment, asset protection, and estate planning.
