The structure and defining characteristics of a family trust are generally the same as that of a discretionary trust (although in some circumstances, family trusts will be fixed trusts or deceased estates). A discretionary trust gives the trustee “discretion” in the distribution of profits and assets to the beneficiaries (in contrast to a fixed or unit trust where the beneficiaries are entitled to a specific portion of trust income). The main difference between a family trust and discretionary trust is the treatment family trusts receive from the Australian Taxation Office (ATO). A variety of tax benefits can be derived from the qualification of a trust as a family trust. For this reason, many successful families operate businesses and commence joint ventures through the operation of a family trust.
In order to elect to be a family trust, the trust must satisfy the family control test. The family control test is mainly concerned with the control of trust income and profits. Although there are a variety of tax benefits that can be derived from family trusts, profits or income received by beneficiaries of the trust who are not within the “family group” (as defined by the legislation) are subject to family trust distribution tax (which in the 2011-2012 financial year is 46.5%).
For more information on family trusts, contact our office to speak to a Sydney Trusts Lawyer or Sydney Asset Protection Solicitor.
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