Trust Tax Returns

Trusts are one of the most powerful structures available to Australian business owners and investors — but they are also one of the most complex. When set up and administered correctly, a discretionary trust can provide flexible income distribution, genuine asset protection, and meaningful tax planning opportunities. When managed poorly, they can create serious tax headaches and legal complications.



At Taxcor, we work with trustees across the Central Coast and beyond to ensure their trust obligations are met accurately and on time. From preparing annual financial statements and trust tax returns to trust distribution resolutions and tax planning, we provide practical, experienced support at every stage.

Minimise your tax

Professionally managed

Two-way asset protection 

Succession planning

How Trust Taxation Works

A trust is a legal arrangement in which a trustee holds and manages assets or income on behalf of beneficiaries. The trustee — who may be an individual or, preferably, a corporate entity — has legal responsibility for managing the trust in accordance with the trust deed and all relevant tax laws.



Trusts are not separate taxpaying entities in the way a company is. Trust income is generally distributed to beneficiaries, who then pay tax on their share at their own marginal rates. If income is not properly distributed before year end, it may be taxed in the hands of the trustee at the top marginal rate of 47%.

Example:

The Smith Family Trust holds several residential investment properties. The trustee manages rental income, property expenses, and annual distributions to family beneficiaries. At year end, the trust prepares financial statements and lodges a trust tax return. Each beneficiary includes their distributed share of income in their own individual tax return.

Advantages

Flexible distribution of income among beneficiaries each year

Asset protection — trust assets are generally held separately from personal assets

Useful for succession planning and intergenerational wealth transfer

Separation of ownership and control of assets

Commonly used for family businesses and property investment portfolios

Disadvantages

More complex to set up and administer than a sole trader or partnership

Ongoing professional compliance and accounting costs

Trustees have legal duties and can face personal liability if the trust is mismanaged

Complex tax rules apply, particularly around distributions and related transactions

Professional advice is generally required from the outset

Things to Consider

The trust deed is the governing document of the trust. It must be carefully drafted to ensure it aligns with your intended business structure and distribution strategy. The class of beneficiaries, the trustee’s powers, and the appointor’s role all need to be clearly defined and correct from day one.


Trustee decisions matter. Whether the trustee is an individual or corporate entity, they are legally responsible for the administration of the trust — including maintaining records, preparing financial statements, making distribution resolutions before year end, and lodging tax returns on time. A corporate trustee is generally preferred because it offers additional asset protection and makes succession planning more straightforward.


There are several complex tax areas that apply specifically to trusts, including unpaid present entitlements (UPEs), Division 7A interactions, personal services income (PSI) rules, and trust loss provisions. Distributions to corporate beneficiaries also require careful structuring. These are areas where professional advice is not optional — getting them wrong can be expensive.



Trustees should also be aware that transferring assets into or out of a trust can trigger Capital Gains Tax (CGT) and, in some states, stamp duty. These costs should be factored into any restructuring decisions.

  • Federal Budget Changes Affecting Discretionary Trusts

    The Federal Government has proposed changes that could significantly affect the way discretionary trusts are taxed. Under proposed measures, discretionary trusts may become subject to a minimum 30% tax rate from 1 July 2028, with tax potentially payable at the trust level before distributions are made to beneficiaries.


    These proposals could affect family trust tax planning strategies, income distribution flexibility, bucket company arrangements, and investment and business structures currently using trusts. Transitional rollover relief has been proposed for some taxpayers wishing to restructure out of a trust, though the legislation is not yet passed.


    If you currently operate through a discretionary trust, now is a good time to review whether your structure remains appropriate for your long-term goals. We can help you assess the implications and explore your options.

How We Can Help

We provide trust accounting and taxation services tailored to trustees, business owners, family groups, and property investors. Our services include:

Trust setup and registration

ABN, TFN, and GST registration

Family trust elections

Trust bookkeeping services

BAS and IAS preparation and lodgement

Preparation of annual trust financial statements

Trust tax return preparation and lodgement

Trust distribution resolutions

Tax planning and minimisation strategies

Capital Gains Tax (CGT) advice and small business CGT concessions

Property investment accounting

Business structure reviews and restructuring advice

Asset protection strategy reviews

Xero, MYOB, and QuickBooks setup and support

Ongoing trust accounting and compliance support

Fixed-Fee Packages

  • Fixed annual accounting packages for straightforward trusts
  • Monthly bookkeeping packages available
  • Transparent pricing — no hidden costs
  • Tax planning and advisory services available

Cloud Accounting Software

We support Xero, MYOB, and QuickBooks for trust bookkeeping and record keeping.

Frequently Asked Questions

  • Do trusts need to lodge a tax return?

    Yes. Trusts are required to lodge an annual trust tax return with the ATO reporting all trust income, expenses, and distributions to beneficiaries, even if no tax is payable at the trust level.

  • Does a trust pay income tax?

    In most cases, trust income is distributed to beneficiaries who pay tax at their own rates. However, if income is not distributed correctly, or if specific tax rules apply, the trustee may be assessed for tax — potentially at the top marginal rate of 47%.

  • What is a discretionary trust?

    A discretionary trust (also known as a family trust) gives the trustee the discretion to decide each year how income and capital are distributed among eligible beneficiaries. This flexibility is one of the main advantages of the structure.

  • Can trusts help with asset protection?

    Yes, when structured correctly. Because trust assets are held by the trustee on behalf of beneficiaries — rather than personally owned by individuals — they can offer meaningful protection against personal creditors in many circumstances.

  • What records should a trust keep?

    Trusts should maintain income and expense records, bank statements, invoices and receipts, trust distribution resolutions, trust deeds and any amendments, loan documents, property and investment records, and CGT records. Records must generally be kept for at least five years.

  • Can you help with overdue trust tax returns?

    Yes. We assist trustees with overdue returns, bookkeeping clean-ups, and unresolved compliance matters, and can help bring trust obligations up to date with the ATO.