The Benefits of Running Your Business Through a Trust

When choosing the right structure for your long-term goals, you might weigh up the benefits of a Company versus a Trust. Each has its pros and cons and should be carefully considered. Depending on your business journey – setting up a discretionary trust could save you thousands.

What is a Trust?

A trust is simply an agreement whereby a person or company agrees to hold an asset for the benefit of others. The person or company who controls the asset is known as the ‘trustee’ and those who benefit are called the ‘beneficiaries’. The creator of the trust sets out specific terms how the assets are to be managed in a document called the ‘trust deed’.

In a discretionary trust, the beneficiaries do not have a fixed entitlement or interest in the trust funds. The trustees can decide to distribute income or capital among the beneficiaries as they see fit.

The Benefits of Operating Your Business Through a Trust

Flexibility on income distributions
The trustee decides before the 30th June each financial year how that year’s trust income is to be distributed between the various beneficiaries. Generally, income will be distributed to beneficiaries in lower tax brackets.

Ability to stream capital gains and franked dividends to specific beneficiaries
For example, capital gains should be streamed to beneficiaries with carried forward capital losses.

Limits personal liability / Asset protection
Trust structures allow you to separate your wealth and assets from your business risks. They effectively protect your assets, like your house, super, cars, and investments from attacks by creditors for bad debts, losses, or legal disputes.

The Potential for Simpler Reporting
Trusts have less regulatory requirements than Companies, which means you have more flexibility to focus on running your business. Because discretionary trusts restrict and specify the trust beneficiaries, you may be able to simplify some of your reporting, such as the claiming of tax losses, debt deductions and franking credits. T

Ideal structure for owning capital appreciating assets
The beneficiaries can access the 50% CGT discount on any realised capital gains (if the assets were owned for more than 12 months).

Is a Trust the Right Business Structure for You?

Although we think Trusts are pretty awesome – they’re not for everyone. Trusts can be limiting in some situations, so before you jump in, make sure you understand how you’ll be affected personally.

Have a chat with our business advisers if you’d like to learn more about Trusts and whether it’s the right structure for your personal and business needs.