A trust is a business structure that doesn’t have an owner or owners in the traditional sense. The trust imposes an obligation on the trustee – a person or a company – to hold and operate the business assets for the benefit of others, the beneficiaries.
A trust is the most complex of the four standard business structures. It must have its own Australian Business Number and Tax File Number and requires a formal trust deed that outlines how the trust operates.
It can be expensive to set up and operate, having higher ongoing compliance and accounting costs. The trustee must undertake formal yearly administrative tasks.
A trust is not a separate legal entity. The trustee is legally responsible for the operation of the trust and legally liable for the debts of the trust.
However, the trustee is usually a company (a corporate trustee), which can reduce liability.
The trust must be registered for goods and services tax if its annual turnover exceeds $75,000.
A trust can be tax effective because of the flexibility of its asset and income distribution. It doesn’t distribute losses, only profits.
The beneficiaries have limited rights and control over the business.
A trust has its own advantages and disadvantages compared to other business structures, so it’s very important to get legal advice early on about which structure will best suit your business.