Family Trust Tax and Accounting Services

Family Trust Tax & Accounting

Family trusts bring huge flexibility and tax benefits, but without the right strategy, you risk paying more tax than you have to or breaching ATO compliance rules.

Impact Taxation and Financial Services help families, investors, and small business owners make the most of their family trust tax, so your trust runs smoothly and efficiently every year.

What is a Family Trust?

Family trusts are also known as discretionary trusts. They are legal structures designed to hold and manage assets for the benefit of family members. Families, business owners, and investors in Australia use it to protect assets and distribute income in a tax-effective way.

So how does a family trust work?

The trustee (either an individual or a company) controls the trust and decides how income and capital are distributed.
The beneficiaries (usually family members) receive income or capital distributions as decided by the trustee.
The trust deed lays down the rules of the trust, how it operates, and who benefits from it.

How Does Tax on Family Trusts Work?

A common misconception is that the trust itself pays income, but in most cases, that’s not true.

Under Australian tax law, the beneficiaries — not the trust — are taxed on their share of the trust’s income. This means if income is distributed to several beneficiaries, each person needs to declare their share in their personal tax return and pays tax at their individual rate.

And if the trustee fails to make a valid distribution decision by 30 June, the undistributed income can be taxed at the highest marginal rate, which is currently at 47%.

The trustee is responsible for:

Lodging the family trust tax return each year with the ATO.
Keeping accurate records of income, expenses, and distributions.
Ensuring distributions comply with the trust deed and tax laws.

Family Trust Distribution Tax (FTDT) may apply when distributions are made outside the defined “family group.” This tax ensures income stays within the intended beneficiaries and prevents misuse of the trust structure.

How Does Family Trust Tax Planning Benefit You?

Strategic family trust tax planning helps you make the most of your trust, and keep more of your income in the family.

Income Splitting for Tax Efficiency

Distribute income among family members in lower tax brackets to reduce the overall tax payable on family income.

Capital Gains Tax (CGT) Planning

Distributing capital gains through the trust can reduce CGT, especially if beneficiaries are eligible for the 50% discount.

Asset Protection

Assets held in trust are generally protected from personal creditors, providing additional security for your family’s wealth.

Wealth and Succession Planning

Trusts allow for smooth wealth transfer between generations, maintaining control and continuity in family financial planning.

Learn more about how we carry out Capital Gains Tax (CGT) Advice & Planning.

Setting Up a Family Trust

Setting up a family trust requires careful planning and precision. Our team guides you through every step of the process and ensures that your structure aligns with your goals. For small business owners, we also offer small business tax structuring advice and review how your trust fits into your broader business structure. Here’s what’s involved in the process:

Create a Trust Deed

The legal document that establishes the trust and outlines its rules is prepared.

Appoint a Trustee

This can be an individual or a company responsible for managing the trust.

Nominate Beneficiaries

Immediate and extended family members are nominated to be part of the trust.

Settle the Trust

A nominal amount is provided by the “settlor” to make the trust legally valid.

Apply for an ABN and TFN

ABN and TFN are required for ATO registration and tax lodgement.

Open a Bank Account

The trust must operate under its own bank account for financial clarity.

Frequently Asked Questions About Taxes on Family Trust

What are the main family trust tax benefits in Australia?

Family trusts offer income splitting, CGT discounts, and asset protection. The ability to distribute income among multiple family members can lower the overall tax burden. In addition, family trusts are also useful for long-term wealth management and can support investment and property ownership strategies.

Who pays tax on family trust income?

The beneficiaries of the trust pay tax on their allocated share of income at their individual tax rate. If the income isn’t distributed by 30 June, the trust itself may be taxed at the top marginal rate.

What are my annual compliance requirements as a trustee?

Each year, trustees must lodge a family trust tax return with the ATO, prepare and record valid distribution resolutions before 30 June, keep clear records of income, expenses, and distributions, and review the trust deed to confirm compliance with ATO regulations. We assist trustees in staying compliant and avoiding penalties.

How do family trusts help with capital gains and investment management?

By holding assets within a trust, families can distribute capital gains in ways that minimise taxes. This is an effective approach for property investors, similar to strategies used in our high net worth tax planning services.

Do I need professional advice to set up or manage a family trust?

Absolutely! Family trusts are powerful, but complex. A poorly drafted trust deed, missed lodgement dates, or invalid distributions can attract strict examinations from the ATO. Qualified advisors like Impact Taxation and Financial Services keep everything structured correctly from the start and remain compliant over time.

Schedule a Family Trust Tax Consultation Today

Thinking of setting up a new trust or reviewing your existing structure? The team at Impact Taxation and Financial Services is here to help you plan, manage, and grow with confidence.

Take control of your family’s financial future today. Book a consultation, or explore our other tax planning services to find advice that suits your needs.