If you've reached a point in your trade business where you're earning serious money — say, $200,000+ in net profit — you've probably heard someone mention a "family trust" or "discretionary trust." Tax advisers sometimes mention them in the same breath as company structures and asset protection.

For the right tradie at the right income level, a trust structure can offer significant tax benefits, asset protection, and estate planning advantages. For the wrong tradie, it adds complexity and cost without meaningful benefit.

This guide explains what trusts do, how they benefit tradies, and when it makes sense to set one up.

What Is a Trust in Simple Terms?

A trust is a legal arrangement where a trustee holds and manages assets on behalf of beneficiaries. The trust itself is not a separate taxpayer in the same way a company is — instead, it distributes income to beneficiaries who pay tax at their own marginal rates.

In a typical tradie business trust structure:

  • The trust is the legal entity operating the business
  • The trustee manages the trust (often a company called "ABC Pty Ltd as trustee for ABC Family Trust")
  • The beneficiaries are you, your spouse, children, and possibly other entities

The critical flexibility is this: the trustee can choose each year how to distribute the trust's income among beneficiaries. This creates significant tax planning opportunities.

Types of Trusts Used in Trade Businesses

Discretionary Trust (Family Trust)

The most common structure for trade businesses. The trustee has discretion to distribute income in any proportion to any beneficiary each year.

This is the primary tax planning tool — you can distribute income to the lowest-taxed beneficiary each year, significantly reducing the family's total tax bill.

Unit Trust

Less common for small trades. Income and capital are distributed in fixed proportions (like shares). Used more in property and investment structures, or where different investors need defined entitlements.

Hybrid Trust

A combination of discretionary and unit trust features. Complex and less used for straightforward trade businesses.

For most tradies, a discretionary family trust is the structure being discussed.

The Tax Benefits of a Family Trust for Tradies

1. Income Splitting

This is the primary benefit. Instead of all business profits taxing at your marginal rate (potentially 47% including Medicare Levy), you can distribute to other adult family members in lower tax brackets.

Example: You earn $180,000 in net business profit through your trust.

Without a trust — all at your marginal rate:

  • Tax on $180,000: approximately $54,000 (at 47% on the amount over $180,000)
  • Effective rate: about 30%

With a trust — distributed across your family:

  • You: $90,000 (tax ≈ $20,797)
  • Spouse (who earns $0 separately): $90,000 (tax ≈ $20,797)
  • Total family tax: ≈ $41,594

Annual tax saving vs sole trader: approximately $12,406

The spouse or beneficiary must genuinely receive and control their distribution — the ATO increasingly scrutinises "sham" income splitting where the primary earner retains actual control of distributed amounts.

2. The 50% Capital Gains Tax Discount

Assets held in a trust for more than 12 months qualify for the 50% CGT discount, just like individuals. This is relevant if:

  • You own the business's equipment or vehicles through the trust
  • You're planning to sell the business eventually
  • You hold investment properties in the trust structure

3. Retained Profits at Lower Tax Rates

Trust income that's not distributed in a year can be held in a corporate trustee and taxed at the company rate (25% or 30%). This can be more efficient than distributing all income to high-rate individuals.

However, this requires careful structuring — talk to your accountant about "unpaid present entitlements" (UPEs) and their tax treatment.

4. Asset Protection

A trust can shield business assets from personal creditors. If you're sued personally, assets held in a trust structure may be protected — they belong to the trust, not to you as an individual.

This is particularly relevant for tradies with significant assets (property, equipment) who work in higher-risk environments where public liability claims are possible.

What It Costs to Set Up and Run a Trust

Setup Costs

  • Trust deed preparation: $500–$2,000 (depends on complexity and adviser)
  • ASIC registration for corporate trustee: ~$200–$400
  • ABN and TFN registrations: Free
  • Advice from your accountant or solicitor: $500–$2,000

Total setup cost: typically $1,500–$5,000

Ongoing Costs

  • Annual tax return for the trust: $500–$1,500 (in addition to your personal return)
  • Annual trustee company return: $200–$500
  • ASIC annual fee for the trustee company: ~$300
  • Additional bookkeeping complexity: Varies

Ongoing additional cost above a sole trader: typically $1,000–$3,000 per year.

Break-Even Analysis

If a trust structure saves you $12,000 in tax annually but costs $2,500 more in accounting and compliance, the net benefit is $9,500 per year. At this scale, a trust clearly makes sense.

If you're earning $80,000 net profit with no other family members to distribute to, the structure saves very little tax while adding $2,500 in annual costs. Not worth it.

When Does a Trust Make Sense for a Tradie?

A trust structure is worth considering when:

✅ Net business profit exceeds $150,000–$200,000 — Below this level, the tax savings rarely justify the compliance costs

✅ You have a spouse or adult children with low income — Income splitting only saves tax when there are lower-taxed beneficiaries available

✅ You're building significant assets — Plant, equipment, property or business value worth protecting

✅ You're planning long-term asset accumulation — Trusts are excellent vehicles for holding investments alongside a trade business

✅ Professional advice recommends it — A qualified accountant who knows your full financial picture is essential

A trust probably doesn't make sense if:

❌ Net profit is under $100,000
❌ You're a sole operator with no family beneficiaries
❌ Your primary goal is simplicity
❌ You're in the early years of building your business

The ATO's Family Trust Election (FTE)

To use certain concessions — particularly the family trust distribution tax rules and loss provisions — a trust may need to make a Family Trust Election with the ATO. This locks in the trust's family group and allows easier loss access but restricts who can receive distributions.

Making (or not making) an FTE has lasting implications. Your accountant must make this decision with full understanding of your circumstances — it's not reversible without significant consequences.

Common Mistakes Tradies Make with Trusts

Mistake 1: Setting Up Without Real Planning

Some tradies set up trusts because "my mate the builder has one." But a trust needs a reason — income splitting, asset protection, estate planning. Without a clear purpose, you've just added complexity and cost.

Mistake 2: Not Executing Distribution Resolutions

Every year, the trustee must document a distribution resolution before 30 June — a formal written record of how trust income will be distributed among beneficiaries. Missing this deadline means the ATO may tax the trustee (at the highest marginal rate — 47%) on all trust income.

Many small business owners forget this. It's a genuinely expensive mistake.

Mistake 3: Treating Trust Distributions as Personal Cash Without Structure

When trust income is distributed to a spouse, they need to actually receive it — either via bank transfer, using their income to pay joint expenses, or via a properly documented unpaid present entitlement (UPE). The ATO has been increasingly aggressive about "sham" distributions where the primary earner retains practical control.

Mistake 4: Not Having Adequate Liability Insurance

A trust provides some asset protection, but it's not a substitute for professional liability insurance, public liability cover, or tool insurance. Both are needed.

Mistake 5: Using the Wrong Trustee

A corporate trustee (a Pty Ltd set up specifically to be the trustee) provides better asset protection and continuity than an individual trustee. If you're setting up a trust for your trade business, use a corporate trustee from the start.

Trust vs Company vs Sole Trader: Comparison for Tradies

  • Tax rate — Marginal rate (up to 47%) — 25% (small business) — Depends on beneficiary distribution
  • Income splitting — No — No — Yes — primary advantage
  • Capital gains discount — Yes (50%) — No — Yes (50%) — flows to beneficiaries
  • Asset protection — None — Moderate — Strong (assets in trust)
  • Setup cost — Nil — $200–$400 — $1,500–$5,000
  • Annual compliance cost — Low — Medium ($2,000–$4,000) — Medium-High ($2,000–$5,000)
  • Complexity — Low — Medium — High
  • Suitable income level — Any — $150,000+ profit — $150,000+ profit with family
  • Estate planning — Poor — Moderate — Excellent

For most tradies under $150,000 profit, the sole trader or company structure is more practical. For established trade businesses with family, a trust structure deserves serious consideration.

Setting Up a Trust: The Right Process

If you've decided a trust structure makes sense:

  1. Engage a qualified accountant who specialises in business structures — not just anyone who does tax returns
  2. Discuss your goals — income splitting, asset protection, succession
  3. Choose a corporate trustee structure — set up a simple Pty Ltd as the trustee
  4. Have the trust deed drafted by your accountant or a solicitor
  5. Register the trust for TFN and ABN through the ATO
  6. Transfer business activities to the trust — this may have stamp duty and GST implications
  7. Update contracts, licences, and bank accounts to reflect the new structure

The transition from sole trader or company to a trust isn't always straightforward. Some asset transfers may trigger CGT, and industry licences may need to be re-issued in the new entity's name. Plan this transition carefully.

Frequently Asked Questions

Q: Can I put my trade business into a trust if I already have a sole trader setup?
Yes, but the transition involves setting up the trust, potentially transferring assets (which may trigger CGT or stamp duty), updating your ABN and licences, and notifying clients and suppliers. It's a significant business restructure — not a simple paperwork change.

Q: Who can be a beneficiary of a family trust?
Typically: you, your spouse, your children (including adult children), your parents, siblings, and entities controlled by these people. The trust deed will specify the class of beneficiaries. You cannot add people or entities outside this class after the fact without amending the deed.

Q: What happens to my trust when I die?
The trust deed specifies succession — typically the corporate trustee continues, and control passes to whoever inherits the trustee company's shares. Estate planning for trust structures requires specific legal advice.

Q: Do I need a trust to protect my assets?
Not necessarily. Other options include insurance (liability, tools, income protection), a company structure, personal property protection orders, and superannuation (which is generally protected from creditors). Trusts are one tool among several.