Yes, under Australian law, a family trust can own and operate a business provided the trust deed expressly allows business activities and the trustee complies with the Trusts Act, the Corporations Act 2001 (Cth), and relevant ATO guidelines.
In practice, this often means the trustee—frequently a corporate trustee—holds and manages the business on behalf of beneficiaries. This structure is commonly used for family-run enterprises, professional practices, and small to medium businesses, offering potential advantages in tax flexibility, asset protection, and succession planning.
Legal Definition of a Family Trust
A family trust is not a separate legal entity in itself. It is a fiduciary arrangement where a trustee—either an individual or a corporate trustee—holds and manages assets for the benefit of nominated beneficiaries.
- Trustee powers: Determined by the trust deed; may include the power to carry on a business.
- Beneficiaries: Family members or related entities who may receive discretionary distributions.
- Trust deed: The controlling legal instrument; must expressly permit business activities if the trust is to own or operate a business.
The trustee has fiduciary obligations, including acting in good faith, exercising powers for proper purposes, and avoiding conflicts of interest.
Can a Family Trust Operate a Business Directly?
Yes. The trustee can carry on a business in the name of the trust, entering into contracts, employing staff, and managing operations. In practice, many businesses are conducted through a corporate trustee of the family trust. This provides limited liability, ensuring that directors’ personal assets are shielded from business creditors, while preserving the tax and succession advantages of the trust structure.
Without a corporate trustee, an individual trustee may be personally liable for debts incurred, exposing personal assets to risk.
Legal and Tax Implications of Business Ownership via Family Trust
Operating a business through a family trust carries distinct legal and taxation consequences under ATO guidelines and trust law:
- Income distribution: Trustees may allocate business income among beneficiaries, potentially reducing overall tax liabilities.
- Loss quarantining: Business losses cannot be distributed; they are retained in the trust and subject to strict loss carry-forward rules.
- Capital gains tax (CGT): Eligible trusts can access the 50% CGT discount if assets are held for more than 12 months, especially where shares often form part of business ownership.
- Superannuation obligations: If the trust acts as an employer, the trustee must comply with the Superannuation Guarantee (Administration) Act 1992 (Cth). A trust cannot otherwise pay super contributions independently of an employment relationship, and business operations usually involve hiring staff, which makes compliance essential.
- Regulatory compliance: Trustees must ensure adherence to both the trust deed and statutory obligations, including proper preparation of trust distribution resolutions and annual financial reporting.
Risks of Using a Family Trust for Business Ownership
While the structure offers significant advantages, several legal risks must be managed carefully:
The decision to place a business within a family trust is not without complexity. Risks commonly arise from trustee liability, disputes, and regulatory oversight.
- Personal liability: Individual trustees may be directly liable for business debts.
- Complex compliance: Strict adherence to ATO requirements and trust deed provisions is mandatory.
- Beneficiary disputes: Competing interests among family members can give rise to litigation.
- Financing challenges: Lenders may impose additional conditions when dealing with trust-owned businesses.
Succession Planning and Multigenerational Considerations
A family trust is often used as a vehicle for succession planning, ensuring that a business can be transitioned across generations without triggering direct asset transfers. Because trust assets do not form part of an individual’s estate, succession is determined by the appointor and trustee provisions in the trust deed. Properly drafted, this arrangement allows continuity of control while maintaining flexibility in distributions to future generations.
FAQs: Family Trusts and Business Ownership
The following addresses common questions raised by business owners and families considering trust structures in Australia:
How do family trusts hold business assets?
The trustee acquires and manages business assets—including shares, goodwill, and real property—on behalf of the trust, subject to the trust deed.
Can a family trust protect business assets from creditors?
Yes, provided the trust is correctly structured. Assets within the trust are generally beyond the reach of the personal creditors of beneficiaries.
Family trust vs. company ownership: which is better?
A company provides fixed corporate tax rates and perpetual succession, while a trust offers tax flexibility and asset protection. Many structures combine both.
What are the tax implications of a family trust owning a small business?
Income is distributed to beneficiaries at their marginal tax rates, which may reduce overall liability. However, losses cannot be distributed outside the trust.
Can a family trust own a sole proprietorship?
No. A sole proprietorship is legally inseparable from the individual owner. However, a trust may operate a business directly through its trustee.
How does estate planning affect a family trust business?
Trust assets bypass the will and are controlled by the trustee under the trust deed, making appointor provisions critical for succession planning.
What are the fiduciary responsibilities of trustees?
Trustees must comply with statutory and equitable duties, including acting in good faith, avoiding conflicts, and distributing in accordance with the deed.
Is it better to use a family trust or a holding company?
This depends on the objectives. Trusts are typically used for flexibility and succession, whereas holding companies centralise ownership and control.
What are the insurance implications?
Trust-owned businesses should maintain liability and key-person insurance. Where an individual trustee is appointed, additional coverage may be prudent.
How can a family trust minimise tax?
By distributing income to beneficiaries in lower tax brackets and leveraging CGT concessions available under trust law and tax legislation.
Conclusion
So, can a family trust own a business in Australia? Legally, yes—but the structure requires precise drafting of the trust deed, strict compliance with statutory duties, and ongoing governance to avoid liability or disputes.
For Australian families, trusts remain a cornerstone of business structuring, asset protection, and intergenerational wealth planning. However, the benefits only materialise where professional legal and taxation advice guides both the establishment and operation of the trust. If you are considering this path, understanding how to find a good family law lawyer can be the key step to protecting your family’s wealth and ensuring compliance.
