Summary
- Holding shares through a trust can offer tax planning flexibility, asset protection and succession benefits, but it also introduces cost, complexity and compliance obligations.
- The trustee legally owns the shares, while beneficiaries hold the economic interest, which affects control, tax outcomes and risk exposure.
- Transferring shares into a trust requires formal steps and may be restricted by company constitutions or shareholders’ agreements.
- This guide explains how Australian businesses and investors can hold shares through a trust and outlines key legal and tax considerations.
- LegalVision, a commercial law firm that specialises in advising clients on business structuring and corporate law, provides this practical overview.
Tips for Businesses
Assess whether a trust aligns with your tax, succession and asset protection objectives before setting one up. Consider ongoing costs and compliance obligations. Check transfer restrictions in company documents and seek coordinated legal and tax advice to ensure the structure is implemented correctly and remains effective over time.
A trust is a legal arrangement where a trustee holds and manages assets on behalf of beneficiaries. Owning shares through a trust is one of the most effective ways to structure your investments in Australia. The ownership structure you choose can significantly affect your tax position, succession planning and asset protection. This article explains what a trust is, the key advantages and disadvantages of owning shares through a trust, and the practical steps involved in holding and transferring shares to a trust.
What is a Trust?
A trust is a legal arrangement where a trustee holds and manages assets for the benefit of beneficiaries. The trustee has legal ownership of the trust assets, while the beneficiaries have the beneficial interest.
A trustee can be:
- an individual (or multiple individuals); or
- a company, known as a corporate trustee.
From a risk management and governance perspective, many business owners prefer a corporate trustee, as it provides clearer separation between personal and trust assets and can reduce personal liability exposure. The most common trust used to hold shares is a discretionary trust (often called a family trust). This structure allows the trustee discretion over how trust income and capital are distributed among beneficiaries. By contrast, a unit trust gives beneficiaries fixed entitlements, similar to shareholders in a company.
Advantages of Holding Shares Through a Trust
Holding shares through a trust can offer a range of benefits, including:
- tax planning flexibility;
- potential tax benefits;
- ease of succession; and
- asset protection.
Tax Planning and Tax Benefits
If you hold shares personally, dividends are generally taxed at your marginal tax rate in the year they are received. However, when shares are held by a discretionary trust, the trustee can distribute income to beneficiaries in a tax-effective way.
Trusts can also be advantageous from a capital gains tax (CGT) perspective. If the trust has held shares for at least 12 months, it will generally be entitled to the 50% CGT discount on the sale of those shares. The resulting gain is then distributed to beneficiaries, who are taxed accordingly.
Ease of Succession
Trusts are widely used in estate and succession planning. Once assets are transferred into a trust, the settlor no longer holds them personally. This means that on death, trust assets do not usually form part of the deceased’s estate and are not subject to probate.
Control of the trust is instead passed in accordance with the trust deed, often through the appointment of replacement trustees or appointors. This allows for a smoother and more private transition of wealth across generations.
Asset Protection
Trusts can also offer a level of asset protection by separating personal assets from business or investment assets. Shares held in a trust may be better protected from personal creditors than shares held directly, particularly where the trust is properly structured and administered.
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Disadvantages and Limitations
Despite their advantages, trusts do involve additional cost and complexity. Establishment costs, ongoing accounting fees and compliance obligations should be carefully considered.
There are also limits to tax planning. For example:
- income distributed to minors is generally taxed at penalty rates; and
- any trust income not distributed by the end of the financial year is taxed at the highest marginal rate.
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This guide will help you understand the directors’ duties that apply to you within the Australian corporate law framework.
How to Hold Shares Through a Trust
When shares are held through a trust, the trustee is recorded as the shareholder, “as trustee for” the trust (ATF).
For example:
- Jane Smith ATF Smith Family Trust; or
- Smith Pty Ltd ACN 123 456 789 ATF Smith Family Trust.
Company records, ASIC filings and share certificates will reflect that the trustee holds the shares non-beneficially.
Transferring Shares Into a Trust
If you already own shares personally, transferring them to your trust requires a formal share transfer. Company constitutions or shareholders’ agreements may impose restrictions, such as pre-emptive rights, which must be addressed before the transfer can proceed.
Key Takeaways
Holding shares through a discretionary trust is common and can offer meaningful tax planning, succession and asset protection benefits. However, trusts are not suitable for everyone and must be structured and managed carefully.
Before establishing a trust or transferring shares, it is important to seek legal and tax advice to ensure the benefits outweigh the costs and risks.
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Frequently Asked Questions
A trust is a legal arrangement where a trustee holds and manages assets for the benefit of the trust’s beneficiaries. A trust deed will typically govern the rules of the trust. There are different kinds of trusts, like fixed trusts, unit trusts, discretionary trusts, and charitable trusts, among others. For tax purposes, holding assets on trust can be beneficial.
The trustee of a discretionary trust can distribute income to beneficiaries who have a lower marginal income tax rate. This will minimise your shares’ overall tax liabilities. Additionally, if your trust holds the shares for at least 12 months, a capital gains tax discount may apply.
You will need to inform the company issuing the shares that you will be holding them through a trust and also provide your trust’s details. This is necessary to ensure the company’s internal records reflect this change.
ATF stands for “as trustee for.” When a trust holds shares, company records and ASIC filings reflect the trustee’s name followed by ATF and the trust’s name, indicating the trustee holds the shares non-beneficially.
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