What is a trading trust?
A trading trust or discretionary trust is but one of the many different ways in which to operate a business. Depending on your circumstances or situation, there may be many benefits of operating as a trust (such as discretionary trust or family trust) rather than as a corporation. However, whether a trading trust is right for you will depend on your business objectives, purpose and unique character. A Sydney tax accountant or Sydney accountant can help you determine which structure is suitable for you. Specifically, Navado’s Sydney tax accountants and Sydney accountants are highly experienced in helping individuals, families and partners set up new businesses.
Trusts are complex legal creatures which have the fundamental characteristic of creating a separation of the ownership of the legal interest in property and the ownership of the beneficial or equitable interest in the property; in contrast, in the normal ownership of a property, the owner holds both the legal and equitable interests in the property.
Within the intricate web of law governing trusts, there are a number of varying types of trusts that can be instituted or are implied, including unit trusts, trading trusts, constructive trusts, implied trusts, express trusts and resulting trusts.
Benefits of a discretionary trust
One of the most common forms of trusts is the discretionary trust. The potential capacity to protect assets, effectively manage tax and provide for flexible distributions of profits are the factors driving the attraction and interest in discretionary trusts in Australian businesses (and it is notable that discretionary trusts are implemented more commonly amongst the high wealth bracket). One of the most advantageous features of the discretionary trust is that there is no specific apportionment or entitlement to income, profits, shares or interests to the trust assets. Unlike fixed trusts (where the beneficiaries are entitled to a designated portion of the trust profits), a discretionary trust gives the trustee “discretion” in the distribution of profits and assets to the beneficiaries. Accordingly, in the perfect theoretical world, the assets of the trust may be (but are not always) protected if it can be established that the beneficiaries have no specific legal entitlement to them.
Disadvantages of a trading trust
However, there are often many downsides to operating a trading trust; the law governing trusts is complicated and multifaceted, shrouded by layers of common law and various statutory instruments. It is necessary to obtain sound legal and tax advice to ensure that the trust is, amongst other things, watertight and compliant. Our Sydney tax accountants work with experienced trust lawyers and solicitors and have extensive experience preparing and administrating trusts for clients. Contact our office for more information.
We invite you to contact our office if you require expert advice regarding trading trusts.
This webpage (and any material or wording appearing on this webpage) is provided for general information purposes only and does not constitute any Tax or Accounting Advice. It does not take into account your objectives, financial situation or needs or your instructions or all of the relevant facts and/or circumstances. Navado accepts no responsibility to any person who relies on the information provided on this website. We further refer you to our Disclaimer.
If you require assistance with a Tax or Accounting matter, you should make an appointment to speak to a Public Accountant in our Sydney CBD Head Office.
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