Choosing to own and run a business through a discretionary trust does have a few advantages.
Firstly, a trust has often been viewed as one of the most tax-effective structures. Profits of the business can be easily distributed amongst family members and can be distributed in such a way that tax is paid at the lowest possible individual marginal tax rate. This article is not taxation advice, and while there are benefits to setting up a discretionary trust, it is not suited for every person and every financial circumstance. It is best to obtain your own taxation and accounting advice from a lawyer or accountant.
Secondly, discretionary trusts offer the advantage of asset protection. In the unfortunate event that your business goes bankrupt, the assets of the beneficiaries under the trust are protected. Creditors of the business have no claims against assets of the trust. Only direct creditors of a trust have claims against such assets.
Thirdly, unlike a company, operating the business through a trust means that you can take advantage of the 50% capital gains concession.
However, you should note that operating through a trust may not be the best option for you, depending on the nature of your business, and setting up a trust may be a complicated and expensive process.
Key Takeaways
Both a company and a trust are options to structure your business. Both have advantages, but also carry disadvantages. Are you considering switching from a sole trader to company or trust business structure? Make sure you make the most suitable decision for your business by consulting the relevant tax, legal and accounting advisers.