The complexity surrounding the use of trusts and explaining them is due to the types of trusts available and the elements involved.
Trusts have been a common structure used in small business since the early 1980’s…however the Australia Taxation Office (ATO) have refined the laws regarding trusts in recent years and many of the tax benefits previously associated with trusts (particularly discretionary trusts), are no longer available.
The types of trusts include discretionary trusts (commonly referred to as family trusts), unit trusts and hybrid trusts.
In addition to the type of trust, there are five elements which must be present being: settlor, trustee, trust deed, appointor and beneficiaries.
The benefits of operating as a trust include:
- there may be taxation advantages of operating as a trust (depending on the circumstances of the individual involved)
- there is sometimes the ability to stream income to particular beneficiaries
- in some cases those involved intrusts may have limited liability
Disadvantages of operating as a trust include:
- establishment costs can be high, particularly when a specialised trust deed is required
- capital gains tax (CGT) may be payable when the trust is dissolved (depending on the trust arrangements)
In all honesty, trust arrangements really need to be discussed on a case by case basis as there are so many variables. I also find that while this is a common structure for small business, very few owners operating in a trust actually understand their circumstances.
If you’d like some help with your business operated as a trust, please complete the Contact page.