The main benefits of a family trust are the flexibility to decide each year which beneficiaries receive income, a layer of asset protection because assets are not held in your personal name, access to the 50% CGT discount for capital gains on assets held more than 12 months, and the ability to cap tax by distributing to a bucket company. Each comes with real conditions.

What you will not usually find on the first page of Google is the other half of that sentence. A family trust brings annual compliance cost, a hard 30 June deadline, losses that cannot leave the structure, land tax that is charged more harshly, a section 100A exposure with no standard time limit, and a vesting date that will eventually arrive. None of that makes a trust a bad idea. It makes it a decision rather than a default.

I am Mina Baselyous, a CPA, Chartered Tax Advisor and Registered Tax Agent in Melbourne. This article covers the genuine advantages of a family trust and the traps we actually see bite established business owners. More than one million trusts lodged a trust tax return in Australia in the 2023-24 income year, so the structure is common. Being common is not the same as being right for you.

That figure is 1,062,162 trust tax returns, from ATO Taxation statistics 2023-24, published 17 June 2026.

Benefit 1: You Decide Each Year Who Receives the Income

This is the headline advantage. A discretionary trust lets the trustee decide, each income year, how to split the trust’s income among a class of beneficiaries. Income is then taxed in each beneficiary’s hands at their own marginal rate. If the family has members on different rates, the same profit can carry a materially lower total tax bill.

The word to sit with is “each year”. A company’s share structure locks in who gets what until you change it. A trust does not. Business income is up one year and down the next, one spouse goes part time, an adult child starts university and stops earning. A trust lets the distribution follow the facts rather than a decision made at setup.

Three limits matter. Distributions to beneficiaries under 18 are taxed at penalty rates above a very small threshold, so distributing to young children does not work. Everyone who receives a distribution must genuinely be entitled to it, which brings section 100A into play. And you can only distribute to beneficiaries who are actually within the class defined by your trust deed, which is a question of reading the deed rather than assuming. Our guide to family trust distributions goes through the mechanics.

Benefit 2: The Assets Are Not in Your Personal Name

Assets held by a trust are legally owned by the trustee on behalf of the beneficiaries. No beneficiary of a discretionary trust owns a defined share of anything, only a right to be considered. That separation is what gives a family trust its asset protection value if you are personally exposed through a business, a guarantee or a professional role.

Be honest about what this does and does not do. It is not a shield against your own conduct, it will not defeat a claim over assets transferred to defeat a known creditor, and family law courts can and do treat trust assets as property of the marriage where the parties effectively control the trust. What it does well is separate business risk from family wealth in the ordinary case.

The protection is also only as good as who the trustee is. If you are the individual trustee, you are personally liable for the trust’s debts and your personal assets are exposed. That is why we almost always recommend a company as trustee, and why a corporate trustee is usually money well spent rather than an optional extra.

Benefit 3: The 50% CGT Discount, and the 1 July 2027 Date You Need to Know

An Australian trust can currently discount a capital gain by 50% where the asset was held at least 12 months, and that discounted gain can be distributed to individual beneficiaries. A company cannot use the discount at all. This is the single biggest reason growth assets are often held in a trust rather than a company. It changes for capital gains accruing from 1 July 2027.

First, the mechanism, because it is routinely described too loosely. The discount does not simply “flow through”. Where a trust makes a discount capital gain and distributes it, the beneficiary grosses the gain back up and then applies the CGT discount only if they qualify in their own right. The ATO’s CGT discount guidance, last updated 29 June 2026, confirms Australian trusts can discount a capital gain by 50%. Note too that where a trustee is taxed at the top marginal rate on trust net income, the trustee is not entitled to the discount on that gain.

Now the change, and it is significant. The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 received assent on 26 June 2026 and is in force. For CGT events happening on or after 1 July 2027, the 50% discount for individuals, trusts and partnerships is replaced by cost base indexation. The ATO’s own new legislation page, last updated 29 June 2026, states that “these measures are now law”.

Two details are worth stating precisely, because they are easy to get wrong. The reforms apply only to gains that accrue after 1 July 2027, with transitional rules that preserve the existing treatment of gains built up before that date. And the accompanying 30% minimum tax rate on capital gains applies to individuals, not at the trustee level. Trust gains are caught where they are attributed to an individual beneficiary, not by a separate trustee charge.

The Act also preserves a 50% discount for gains on a new residential dwelling, including through a trust. The detailed requirements for what counts as a new residential dwelling are to be set by the Minister in a legislative instrument, and I could not find that instrument as at 30 September 2026, so treat the new build concession as real in principle and unsettled in detail. Confirm the current position with your adviser before relying on it.

Benefit 4: You Can Cap the Rate With a Bucket Company

A family trust can distribute income to a company beneficiary, which pays tax at the company rate rather than a marginal rate of up to 47%. That caps the tax on profits the family does not need to draw this year, and keeps the capital working. The saving is a deferral, not a permanent exemption, but on a good year the cash flow difference is substantial.

This is the strategy that most often justifies a trust for a profitable business. Distribute enough to family members to use their lower brackets, then park the balance in a bucket company at the company rate instead of pushing a spouse into the top bracket. Later, when incomes are lower, the company can pay franked dividends and the franking credits come back.

Two live issues sit underneath it. The entitlement has to actually be dealt with, and the tax treatment of an unpaid present entitlement owed to a corporate beneficiary changed in 2026 following the High Court’s decision in Commissioner of Taxation v Bendel [2026] HCA 18. And where the bucket company is itself held inside the family trust, the franking credit rules add a layer most owners are not expecting. We cover both in our guides to bucket companies and to a company held in a family trust and the 45 day rule.

Benefit 5: The Structure Outlives You

A family trust does not die when you do. Assets inside it are not part of your estate, so they do not pass under your will and are generally harder to challenge. Control passes through the appointor and the trustee company’s shares, which means succession can be managed deliberately rather than litigated. For a family business this is often as valuable as the tax outcome.

The catch is that this only works if the deed and the control positions have been set up and maintained with succession in mind. In practice we regularly see deeds where the appointor is a single named individual with no succession clause, or a trustee company whose shareholding has never been reviewed. The structure is doing nothing for succession at that point. It is just sitting there. If you want the mechanics of those roles, our guide to the key considerations for running a family trust walks through the deed, the appointor, the settlor and the resolution minute.

What a Family Trust Actually Costs to Run

A family trust is a separate reporting entity. It needs its own tax file number, its own set of financial statements, its own trust tax return, and a trustee resolution documented every year before 30 June. If you use a corporate trustee, that company carries its own ASIC annual review fee and its own registers. None of this is optional and none of it is trivial.

Setup covers the deed, the trustee company, and in Victoria the deed may need to be stamped. The recurring cost is the annual accounts and return, the trustee company’s ASIC fee, and the distribution minutes. Add the adviser time to work out the distribution properly, which is where the value actually is, and a trust is a real line item in the budget every year for as long as it exists.

Our rule of thumb from advising Melbourne business owners is simple. If the annual tax saving does not comfortably exceed the annual running cost with room to spare, a trust is a structure you are paying to maintain rather than a strategy. Where it earns its keep is on businesses with genuine profit, multiple adult family members, and growth assets. For a comparison of where a trust sits against the alternatives, see our guide to trusts in Australia.

The Traps Nobody Mentions

Five issues cause almost all the trouble we see with family trusts: section 100A reimbursement agreements, losses trapped in the trust, the 30 June resolution deadline, the vesting date, and state land tax surcharges. None are obscure. All of them are routinely left out of the marketing material, and each one is capable of costing more than the trust ever saved.

Trap 1: Section 100A and PCG 2022/2

Section 100A attacks reimbursement agreements: arrangements where one beneficiary is made presently entitled to income but someone else gets the benefit, entered into outside ordinary family or commercial dealing. Where it applies, the trustee is taxed at the top marginal rate on that income, and there is no standard amendment time limit, so the Commissioner can reach back indefinitely.

The classic pattern is distributing to an adult child on a low tax rate while the cash stays with the parents. The ATO’s PCG 2022/2 sets out three risk zones: white for arrangements in years ending before 1 July 2014, green for low risk arrangements, and red for high risk arrangements where the ATO says it may proceed to audit. There is no blue zone in the final Guideline, despite what a lot of older commentary still says.

One current caveat. The ATO’s companion ruling TR 2022/4 now carries a banner stating it is being reviewed as a result of the Bendel decision. The guidance is on foot but it is moving, so this is not a settled area to freewheel in. Our detailed article on section 100A and trust reimbursement agreements works through the zones.

Trap 2: Losses are trapped inside the trust

A trust cannot distribute a tax loss. If your trust makes a loss, the loss stays in the trust and carries forward until the trust has income to absorb it. The ATO’s guidance on claiming a tax loss, last updated 4 March 2025, is blunt about it: if the trust terminates before the losses can be offset, they are lost.

Recouping those losses later is then governed by the trust loss rules in Schedule 2F. This is one of the main reasons to make a family trust election. A valid family trust election exempts the trust from the trust loss tests, with the exception of the income injection test. The trade off is that distributions outside the defined family group attract family trust distribution tax at the top rate plus Medicare, so the election narrows who you can pay. Our guide to the family trust election and interposed entity election covers the decision.

Trap 3: The 30 June resolution deadline

If you make beneficiaries entitled to trust income by resolution, the resolution must be made by 30 June to be effective for that year. Miss it and the default clause in your deed decides, or the trustee is assessed at the top marginal rate on the undistributed income. This is the most avoidable and most common failure with family trusts.

The ATO’s trustee resolutions checklist adds two points worth knowing. If your deed requires the resolution earlier than 30 June, the deed wins and you must comply with it. And while the resolution must be made by 30 June, the ATO will accept records created after 30 June as evidence that a resolution was validly made by that date. A separate rule applies to capital gains, where specific entitlement must be recorded within two months of year end. We set out the practical drill in our article on trust distribution minutes.

Trap 4: The vesting date

Every family trust deed has a vesting date, the day the trust must end and the assets pass absolutely to the takers on vesting. It is typically 80 years from the date the deed was made, because state perpetuity law sets the outer limit. When a trust vests, the tax consequences can include a CGT event and stamp duty. It is a deadline hiding in plain sight.

The ATO’s ruling on trust vesting, TR 2018/6, remains current. Its central practical message is that you cannot simply ignore a vesting date once it has passed and carry on as before. Extending the vesting date is sometimes possible, but only before it arrives and only if the deed and state law allow it.

The perpetuity period is state law, not federal, so check the state whose law governs your deed. I have verified the 80 year period for New South Wales. South Australia is different: it has abolished the rule against perpetuities, so no vesting date is required, though after 80 years the Supreme Court may on application order that the interests vest. If your deed was drawn in the 1990s, the vesting date is closer than it feels.

Trap 5: Land tax is harsher on trusts

If your trust holds property, land tax is assessed more aggressively than it is for an individual. In Victoria, land held on trust is generally assessed at a surcharge rate, and the trust threshold is $25,000 of taxable value compared with $50,000 for a general owner. The surcharge applies up to $3,000,000, above which trust and general rates converge.

The figures are worth seeing side by side. On the State Revenue Office Victoria current land tax rates, which apply for the 2024 to 2033 land tax years, a general owner pays nothing below $50,000, a flat $500 from $50,000, a flat $975 from $100,000, and only starts paying a marginal 0.3% above $300,000. A trust starts at $25,000, pays $82 plus 0.375% above $25,000, and steps up through 0.675% above $250,000, 0.975% above $600,000 and 1.275% above $1,000,000. At $3,000,000 and over both scales meet at $31,650 plus 2.65% of the excess, so the surcharge bites hardest in the middle of the range rather than at the top.

There is a second layer. Victoria’s absentee owner surcharge applies to absentee trusts, including absentee discretionary trusts, and the SRO confirms the absentee owner surcharge rate is 4% from the 2024 land tax year, up from 2% for the 2020 to 2023 years. Those four percentage points sit on top of the scale that would otherwise apply. A trust with a foreign beneficiary in the class, or a foreign controller, can be caught by absentee and foreign purchaser surcharges in Victoria and in other states, sometimes without the family realising the deed’s beneficiary class is that wide. If you hold property in a trust, this deserves a specific look rather than an assumption.

What Is Coming: The Proposed 30% Minimum Tax on Discretionary Trusts

The Government announced on 12 May 2026, as part of the 2026-27 Federal Budget, that it will introduce a 30% minimum tax on discretionary trusts from 1 July 2028. This measure is not yet law. It would apply at the trustee level, with non corporate beneficiaries able to claim a non refundable credit for the tax the trustee has paid.

Keep this separate from the capital gains change discussed earlier. They are two different measures with two different start dates and two different statuses. The capital gains reform is law and starts 1 July 2027. The discretionary trust minimum tax is an announcement and is proposed for 1 July 2028. The ATO’s page on the measure, last updated 3 September 2026 and re-checked on 30 September 2026, says in terms: “This measure is not yet law.”

What should you do about an announcement? Not much yet, and certainly not unwind a working structure on the strength of a Budget paper. What it does argue for is not adding new complexity you would regret, and diarising a structural review. We are tracking it in our article on the proposed 30% minimum tax on family trusts. Confirm the current status with your adviser, because this one is moving.

The Honest Bottom Line: A Trust Changes Who Pays, Not How Much

A family trust does not reduce tax by itself. Every dollar of trust income is taxed in someone’s hands. What a trust does is give you a choice about whose hands, and that choice is only worth something if there is genuinely someone in the family on a lower rate, or a company beneficiary to cap the rate. Without that, you are paying for flexibility you cannot use.

In practice, says Mina Baselyous (CPA, CTA, Registered Tax Agent), the family trusts that disappoint people are the ones set up because someone said everyone should have one, with no thought about who the distributions were actually going to go to.

The right test is not “is a family trust good”. It is whether, for your business, your family and your assets, the flexibility and protection are worth the cost and the obligations. That is a structuring conversation, and it is the one we have with owners through our business structuring services and in building trust distribution strategies that stand up to scrutiny.

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