Trusts in Australia

This article provides a brief overview of discretionary family trusts in Australia, outlining their structure, purpose, and role in wealth management. It examines the key taxation features of discretionary family trusts and the advantages they provide in matters of income distribution and asset protection. This article explores the unique characteristics of discretionary family trusts owing to the Australian legal framework. This article considers the taxation issues that arise in an international context, highlighting the cross-border complexities of trust residency, taxation of beneficiaries, and compliance with KYC protocols and other regulatory obligations. Australia is a country of trusts. Trusts are the predominant structure for managed investments (fixed interest unit trusts), listed and unlisted, retail and wholesale, and discretionary family trusts are a remarkably common family investment holding structure, including for active family businesses. The Australian Taxation Office has publicly stated that there are over 1 million active discretionary trusts in Australia, in a country of approximately 26 million people. There is presently no Inheritance Tax or a Gift Tax in Australia, and accordingly, there is a heavy use of trusts as a tool for family investment holding, taxation benefits, and succession, typically with ‘grantor’ type controls in the founder. Private trust companies are the norm, as no licensing is required. Many, many trusts are largely administered by accountants, and perhaps the large majority of trust deeds are sold ‘off-the-shelf’. This article provides a brief summary of the key taxation features of discretionary family trusts in Australia. It is by no means a comprehensive analysis, but is designed to provide a succinct overview of such trusts in Australia and their taxation treatment. Very often, the founders and controllers of trusts are not well aware of the breadth of trust law issues that arise nor do they fully understand the obligations of trustees. Accordingly, there is a dramatically increasing number of trust disputes and litigation.