Tax Advantages of a Family Trust: How to Save Thousands in Australia

 

Australian families are increasingly turning to discretionary family trusts as an effective strategy for tax minimisation, wealth protection, and succession planning. These flexible structures allow trustees to legally hold and manage assets while distributing income to family members at their discretion. Because income flows through to beneficiaries under pass-through taxation principles, it is taxed at individual marginal rates rather than at a flat trust rate. This enables families to reduce their overall tax bill by distributing profits to lower-income members such as adult children, retirees, or part-time working spouses. For instance, a $200,000 business profit taxed under one individual may result in over $65,000 in tax, but if distributed equally among three adult beneficiaries through a trust, the tax payable can fall to around $40,000 — an annual saving of nearly $26,000.

In addition to income splitting, family trusts provide access to the 50% capital gains tax (CGT) discount if assets are held for at least 12 months. Trustees can also strategically stream capital gains to beneficiaries with lower tax rates or existing capital losses, further reducing tax obligations. Investment income from sources such as rental properties and franked dividends can be directed flexibly to optimise tax efficiency. Franking credits, for example, may be streamed to low-income beneficiaries who can claim refunds, while rental income can be split in ways that protect trust assets and minimise the family’s taxable income. These features make family trusts one of the most powerful tax-planning and investment tools available in Australia.

Originally Published: https://www.starinvestment.com.au/tax-advantages-of-a-family-trust/