Advantages

• Ultimate asset protection when have a corporate trustee. Not only are the principal’s personal assets protected from creditors of the trust, but the business is protected from the principal’s personal creditors. Unlike a company or fixed trust where the shares or units of the principal are assets of the principal and which will form part of the principal’s bankrupt estate
• Less regulation than a company
• Flexible distributions allow income splitting
• Income can be distributed to a bucket company to be taxed at the corporate tax rate
• The trust deed can allow flexible distributions of capital
• The trust can employ the principals and provide salary packaging
• The trust can employ principals and provide employer sponsored Superannuation
• The trustee can vary distributions among family members according to their needs
• The trust deed can be tailored to suit the needs of the principals and other beneficiaries
• No need to lodge returns and other forms with ASIC
• The 50% CGT discount is available
• Can still obtain the small business CGT concessions
• Easier to wind up than a company
• The substantiation rules do not apply
• Easy to introduce new beneficiaries, provided they are within the range of objects
• Able to stream income to minimise tax
• Easy to wind up
• On a winding up, there is no equivalent to S.47 ITAA 1936 for companies
• Control can be transferred by changing trustee and/or the appointer

Disadvantages

• They are complex and not many people understand precisely how they work.
• Costly to establish.
• Costly to run.
• Ultimate beneficiary statement rules apply.
• Beneficiaries subject to complex PAYG installment calculations.
• Cannot distribute losses to beneficiaries. Losses are trapped in the trust.
• Complex trust loss rules apply.
• Cannot transfer losses to other trusts unless comply with complex and restrictive consolidation rules.
• May need to elect to be a family trust to satisfy trust loss rules or to be able to distribute franked dividends to beneficiaries without adverse tax implications.
• No perpetual existence, normally must be wound up within 80 years.
• More difficult to satisfy conditions for the small business CGT concessions, in particular the controlling individual test.
• Technically, more different to satisfy the asset test in the small business CGT concessions.
• Amendments to the trust deed could constitute a resettlement for CGT and stamp duty purposes.
• If required to make a family trust election, then flexibility of distribution is restricted.
• The trustees can be personally liable for the debts of the trust in some circumstances.
• ATO dislikes trusts, so they are forever being targeted.
• Beneficiaries do not have a transferable interest.
• If a new member is to be admitted to the business, it is not easy to give them a fixed interest.
• Additional stamp duty and land tax implications depending on the state.
• Income accumulated in the trust is taxed at the top marginal rate.
• It is difficult for a beneficiary of a discretionary trust to satisfy the 45-day holding period rule where the trust receives a franked dividend, where the trust is not a family trust.

Disclaimer: This is not advice. Items herein are general comments only and do not constitute or convey advice per se. The information contained in this article is for guidance only and should not be relied upon without obtaining professional advice having regard to your specific circumstances.
“Liability limited by a scheme approved under Professional Standards Legislation”