High-net-worth families in Australia commonly use family trusts and family investment companies (FICs) as vehicles for wealth management, asset protection, and succession planning. Each structure operates under distinct legal and tax frameworks. Choosing between them requires close attention to compliance obligations, tax outcomes, and governance priorities under Australian law.
What Is a Family Trust?
A family trust, typically a discretionary trust, is a fiduciary relationship where a trustee legally holds property or investments for the benefit of beneficiaries, as set out in a trust deed.
Legal features include:
- Governance: Trustees must act in accordance with the trust deed and fiduciary duties under state trust law.
- Tax treatment: Trust income is distributed to beneficiaries, who are taxed at their marginal rates. The 50% capital gains tax (CGT) discount applies for assets held more than 12 months.
- Asset protection: Because beneficiaries do not hold legal title, assets are generally insulated from personal creditors.
- Succession: Trust assets bypass probate but are subject to the terms of the deed and the powers of the appointor.
Risks: Undistributed income is taxed at 47%. Improper distributions may trigger the Family Trust Distribution Tax, and ATO scrutiny of trust arrangements has increased in recent years.
What Is a Family Investment Company?
A Family Investment Company is a proprietary limited company incorporated under the Corporations Act 2001 (Cth), with family members typically holding shares and family-appointed directors managing operations.
Legal features include:
- Governance: Directors owe statutory and fiduciary duties under the Corporations Act. Shareholders exercise control through voting rights and share transfers.
- Tax treatment: Profits are taxed at the corporate rate (25–30%). Retained earnings may be reinvested, and dividends carry franking credits. The CGT discount does not apply.
- Succession: Shares can be transferred or restructured, giving a clear mechanism for intergenerational wealth planning.
- Liability: Shareholders’ liability is limited to the value of their shares.
Risks: Companies face ongoing ASIC reporting requirements, governance obligations, and less favourable CGT treatment compared with trusts.
Key Differences: Family Investment Company vs Trust
The structures differ fundamentally in law, taxation, and succession:
- Legal form:
- Trust: A fiduciary arrangement, not a separate legal entity.
- FIC: A registered company with its own legal personality.
- Control:
- Trust: Trustees exercise discretion, subject to the deed.
- FIC: Directors manage operations; shareholders control via ownership rights.
- Taxation:
- Trust: Income split among beneficiaries; CGT discount available.
- FIC: Profits taxed at flat corporate rates; no CGT discount.
- Succession and continuity:
- Trust: Ongoing subject to the deed and appointor powers.
- FIC: Perpetual existence with shares enabling straightforward succession.
- Compliance:
- Trust: Requires a trust deed, TFN, and annual trust return.
- FIC: Requires ASIC incorporation, ACN, company constitution, and annual corporate reporting.
When Should You Use a Family Trust or a Family Investment Company?
Deciding between a family trust and a family investment company requires more than just tax comparisons — it depends on long-term objectives, control preferences, and risk management priorities. The following breakdown outlines scenarios where each structure is most appropriate under Australian law, helping families choose a vehicle aligned with their financial strategy and estate planning needs.
When is a family trust the better option?
A family trust is generally more suitable when:
- You want flexibility in income distribution among family members.
- You're holding appreciating assets like real estate that benefit from the 50% capital gains tax (CGT) discount.
- You need asset protection from personal creditors or family law claims.
- You're aiming to minimise tax by allocating income to beneficiaries on lower tax rates.
- You prefer a less formal structure with lower administrative overhead than a company.
When is a family investment company (FIC) the better option?
A family investment company is more suitable when:
- Your family intends to retain profits within the structure for reinvestment, rather than distribute them annually.
- You want clearly defined control and ownership, managed through shares and directors.
- You're building a long-term investment portfolio, particularly in equities, startups, or commercial ventures.
- You prefer a corporate governance framework with ASIC oversight and statutory duties.
- Your family wants to centralise decision-making in a formal, perpetual legal entity.
Should a family consider using both structures?
Yes. Many Australian families use a hybrid strategy:
- A discretionary family trust owns shares in the family investment company.
- This enables income streaming, access to CGT concessions, and corporate-level control.
- It combines the asset protection and tax flexibility of a trust with the succession certainty and governance of a company.
Legal and Tax Considerations in Australia
Families must balance fiduciary obligations under trust law with directors’ duties under the Corporations Act. Tax compliance is equally critical: trusts risk penalty tax on incorrect distributions, while companies face stricter ASIC oversight. Legal advice is indispensable to ensure the chosen structure aligns with family objectives and statutory requirements. For many families, understanding how to find a good family lawyer is the first step in ensuring their wealth structures are drafted and managed in full compliance with Australian law.
FAQs: Family Investment Company vs Trust in Australia
Before addressing common queries, it is important to recognise that neither structure is inherently superior. The optimal choice depends on asset type, succession goals, and the family’s long-term tax strategy.
What is the main legal difference between a family investment company and a trust?
A trust is a fiduciary arrangement where a trustee holds assets for beneficiaries. A family investment company is a separate legal entity incorporated under the Corporations Act with directors and shareholders.
Which is better for property ownership?
Trusts are generally preferred for property due to access to the 50% CGT discount and income streaming. Companies are more effective for long-term reinvestment where profits are retained rather than distributed.
How does taxation differ in practice?
Trusts distribute income to beneficiaries, taxed at their marginal rates. Companies pay corporate tax on retained earnings, with dividends carrying franking credits.
Which offers stronger succession planning?
Trusts depend on deed provisions and trustee discretion, which can create uncertainty. Companies provide clearer succession pathways through share ownership and corporate governance structures.
Conclusion
Deciding between a family investment company and a trust requires close analysis of governance, taxation, and succession priorities under Australian law. Each has advantages and limitations. In many cases, using both structures in tandem offers the most effective solution.
Families considering trusts, companies, or hybrid structures should seek advice from a qualified estate planning lawyer via LegalFinda to secure the most appropriate legal framework for their wealth.
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