Flexibility and asset protection, at the cost of genuine added complexity
Sole trader. Company. And then, somewhere in the conversation, someone mentions a trust.
It sounds like something for wealthy families and complicated estates — but a genuine share of small Australian businesses are actually run through one.
The short answer
A trust is a structure where a trustee — a person or a company — holds and runs the business on behalf of other people, called beneficiaries, according to a formal document called a trust deed. Unlike a sole trader or a company, a trust isn't a separate legal entity in the same way — the trustee is legally responsible for everything, including the business's debts, while the trust deed determines who actually benefits.
Why small businesses use them
Flexible profit distribution. In the most common type — a discretionary trust — the trustee can decide each year how profit is distributed among the beneficiaries, within the rules of the deed. This gives genuine flexibility to respond to each beneficiary's individual tax position, potentially reducing the overall tax paid across a family group.
Asset protection. A trust structure can help separate valuable assets — property, intellectual property, equipment — from the day-to-day trading risk of the business, but this isn't automatic. The actual protection achieved depends on matters including how the trustee is structured, what the trust deed actually says, whether personal guarantees have been given, how assets and transactions have genuinely been kept separate, and the specific legal circumstances involved. A trust on its own doesn't guarantee that business assets are shielded.
Succession planning. Trusts are commonly used in family businesses specifically because they can support a smoother transition of control and benefit across generations.
The two most common types for small business
| Type | How distributions work |
|---|---|
| Discretionary trust (family trust) | The trustee decides each year who receives income or capital, and in what proportion — beneficiaries have no fixed entitlement |
| Unit trust | Interests are divided into fixed units, similar to shares — distributions follow unit-holding proportionally, giving more certainty, which often suits unrelated business partners or investors |
Why trusts are more complex than they first appear
Trust structures are generally more expensive and complicated to set up than a sole trader or company, and require ongoing administration to run properly.
Trusts don't generally pay income tax at the trust level — tax obligations usually flow through to beneficiaries based on their entitlement to trust income each year, which needs to be properly calculated and documented. In particular circumstances — for example, where income isn't distributed to a presently entitled beneficiary — the trustee itself can be assessed and taxed instead, so this isn't an absolute rule.
Distributions need to genuinely align with the trust deed and actually reach the intended beneficiaries — the ATO scrutinises arrangements that look aggressive or artificial.
Varying a trust deed after it's established can itself trigger capital gains tax or stamp duty consequences, so the deed needs to be drafted properly from the outset.
A corporate trustee — a company acting as trustee — is common precisely because it can help limit personal liability, but it adds another layer of structure and cost.
Is a trust right for your business?
This genuinely depends on your specific circumstances — family situation, growth plans, risk profile, and whether you're bringing in unrelated partners or investors. A trust tends to suit family-run businesses wanting flexible income distribution and succession planning; a unit trust or company tends to suit situations needing more certainty, particularly with non-family investors.
A quick self-check
Am I considering a trust primarily for family income flexibility, asset protection, or succession planning?
Do I understand that a trust involves genuinely more ongoing administration than a company or sole trader?
If I'm bringing in unrelated partners, would a unit trust or company give more certainty than a discretionary trust?
Have I had the trust deed properly drafted for my specific situation, rather than using a generic template?
Free official resource
The Australian Government explains the trust structure and what's involved in setting one up.
business.gov.au — Trust https://business.gov.au/planning/business-structures-and-types/business-structures/trust
When should you get professional help?
you're considering a trust structure and want to understand whether it genuinely suits your situation;
you need a trust deed properly drafted, rather than adapted from a generic template;
you're distributing income through an existing trust and want to confirm it's being done correctly; or
you're weighing a trust against a company structure and want the trade-offs explained for your circumstances.
Continue learning
→ Sole Trader vs Company — Which Business Structure Is Right for Me?
→ Should I Bring a Business Partner or Shareholder Into My Business?
→ How Do I Prepare My Business for Sale or Succession Years Before I Want to Leave?
SKC Accounting | Knowledge Centre | Knowledge Guide 078
Last reviewed: August 2026
General information only. This guide does not take into account your individual circumstances and is not a substitute for professional accounting, taxation, legal or financial advice.