Discretionary Trust
A Discretionary Trust is a very common vehicle for use by families for business operations. Every Discretionary Trust needs a Settlor, who is the person who establishes the Trust and signs the Trust document. The Settlor should never be a Beneficiary under the Trust.
A Discretionary Trust is a very common vehicle for use by families for business operations. Every Discretionary Trust needs a Settlor, who is the person who establishes the Trust and signs the Trust document. The Settlor should never be a Beneficiary under the Trust.
A Discretionary Trust needs a Trustee. A Trustee can be a company, or individuals. The Trustees are responsible for all day-to-day activities of the Trust. Every Discretionary Trust must have a Trust Deed which sets out:
- the objects of the Trust
- what the Trust can do
- investment powers
- borrowing powers
- and the names of Settlor, Beneficiaries, Trustee and Appointor.
Beneficiaries can be divided into a number of groups, such as:
- Primary Beneficiaries
- Secondary Beneficiaries
- Tertiary Beneficiaries
A Discretionary Trust, through the Trustee, can conduct a wide range of business activities.
The Discretionary Trust has to prepare an income tax return for the activities of the Trust and show the distribution of the taxable income of the Trust to the Beneficiaries. The Beneficiaries have to include their share of distribution from the Discretionary Trust in their own income tax return and pay income tax on their total taxable income.
In normal circumstances, the Discretionary Trust does not pay income tax, however it may have to pay income tax if the Trustee has not distributed the taxable income. This is at a penalty rate of 45%.
More Information
Additional information is available to download in our business papers area of the site filed under the Business Entities section.
Need Assistance?
The business structure you choose will have an impact on the way you are taxed, ongoing costs and asset protection. This is one area you will want to speak to an accountant about before you jump in.
If you are struggling to decide if a discretionary trust is the right choice for you, please give us a call on (02) 4390 4156 for a completely free and informative consultation.
Our services include all entity formations, including trusts. If a discretionary trust is the right vehicle for you, we can organise everything from your trust deeds through to the end-of-year tax planning.
ATO Booklet
The Australian Tax Office have produced a short booklet titled, Choosing the Right Business Structure.
Sole traders, partnerships, trusts and companies are covered in the publication along with a short overview of the advantages, responsibilities and super obligations of each.
It’s important you understand these advantages and responsibilities as they may affect:
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- the way tax applies to your business
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- protection of your assets
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- your operating costs
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- how other businesses deal with you.
Download Choosing the right business structure
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This information is for guidance only and is not intended as specific advice to any reader. Professional advice should be obtained before acting on any information contained herein. The publisher accepts no responsibility for loss occasioned to any person or organisation as a result of action or the refrain of action as a consequence of the contents of this publication.