Written by
Zachary Swan
Reviewed by
Companies are owned by shareholders, however, there are different entities that can own these shares. Firstly, people can own these shares, as can a parent company. Shares can also be held in trust. In this article, we’ll discuss whether a trust can own shares and how this type of arrangement works.
Written by
Zachary Swan
Reviewed by
Yes, a trust can hold shares in a company in Australia, but not in the way most people expect. The trust itself isn’t the shareholder. Instead, the trustee holds the shares on behalf of the trust’s beneficiaries. It’s a small but important distinction, and getting it wrong creates real problems down the track.
- A trust cannot be a shareholder , but its trustee can. The shares are registered in the trustee’s name “as trustee for” the trust (often written as “ATF”).
- The most common structure is a discretionary (family) trust with a corporate trustee. The corporate trustee holds the shares in a trading company, and the trust distributes dividends to beneficiaries at its discretion.
- The main benefits are income splitting, asset protection, and succession planning. These three advantages are why hundreds of thousands of Australian small business owners use this structure.
- Undistributed trust income is taxed at 47% , not the company rate. You must pass a distribution resolution before 30 June each year, or the ATO taxes any undistributed amount at the top marginal rate plus Medicare levy.
- Transferring existing shares into a trust triggers a CGT event. If you already own shares personally and want to move them into a trust structure, get accounting advice on timing and any available rollovers first.
Table of Contents
What does it mean for a trust to hold company shares?
A trust is not a legal entity. It’s a relationship: one where a trustee holds assets for the benefit of beneficiaries. Because it has no legal personality of its own, a trust cannot be listed as a shareholder in ASIC’s records.
What happens instead is this: the trustee is registered as the shareholder, but specifically in their capacity “as trustee for” the trust. On the company’s share register and any share certificates, you’ll see the trustee’s name written as:
ABC Pty Ltd ATF The Smith Family Trust
“ATF” stands for “as trustee for.” This notation tells ASIC, the company, and any future investors that the trustee doesn’t own those shares beneficially. They hold them on behalf of the trust’s beneficiaries. It’s a well-established approach used by hundreds of thousands of Australian small businesses.
The practical consequence is that the beneficiaries have the economic interest in the shares (including any dividends), while the trustee has legal ownership and control. The trust deed governs how that control is exercised and how income gets distributed.
Who are the key players in the structure?
Three roles matter most when a trust holds company shares:
The trustee is the legal shareholder. They attend shareholder meetings, receive dividends into the trust, and sign off on any share transfers. Trustees owe strict duties to beneficiaries: to act in good faith, keep trust assets separate from personal assets, maintain accurate records, and not profit from the position beyond what the deed allows.
The beneficiaries are the people (or companies) who ultimately benefit from the shares. In a discretionary trust, beneficiaries don’t have a fixed entitlement. They have a right to be considered for distributions. In a unit trust, their entitlement is fixed at the outset. One firm rule across all trust types: a trustee cannot be the sole beneficiary. If you’re both trustee and beneficiary, you must include additional beneficiaries in the deed.
The appointor is often overlooked but is arguably the most powerful role. The appointor has the power to remove and replace the trustee. Whoever controls the appointor role effectively controls the trust , and therefore the company shares it holds. This role rarely appears in generic trust articles but comes up repeatedly in Lawpath consultations.
Corporate trustee vs individual trustee: which should you use?
An individual can act as trustee, but most advisers recommend against it for business structures. The reason is continuity. If the individual trustee dies, loses capacity, or goes bankrupt, the trust can be frozen until a new trustee is appointed. That creates a gap where the shares can’t be voted, dividends can’t be received, and business decisions stall.
A corporate trustee , a company set up specifically to act as trustee , solves this. The company continues regardless of what happens to any individual director. It also provides better liability separation: actions taken by the corporate trustee in its trustee capacity are clearly distinguished from personal actions, which makes the structure cleaner for asset protection purposes.
The typical setup looks like this: you register a new holding company (e.g. “Smith Holdings Pty Ltd”) to act as trustee. You and your partner are directors of that company. Smith Holdings Pty Ltd then holds shares in your trading company “as trustee for The Smith Family Trust.” Your directors’ decisions about the trust are made through that holding company , not in your personal names.
The corporate trustee should not trade, have its own ABN, or earn income in its own right. It exists purely to hold the trust’s assets and manage distributions. If it earns fees, those fees become taxable income that complicates the structure unnecessarily.
Discretionary trust vs unit trust: what’s the difference for holding shares?
Both trust types can hold shares in a company. The difference is in how income and capital are distributed.
| Feature | Discretionary (family) trust | Unit trust |
|---|---|---|
| Distribution flexibility | Trustee decides who gets what each year | Fixed proportional to units held |
| Tax planning flexibility | High , can shift income to lower-rate beneficiaries annually | Low , distribution proportional to unit holdings |
| External investor suitability | Less common , investors prefer fixed entitlements | More suitable , units are measurable and transferable |
| Common use case | Family-owned small businesses | Joint ventures, property syndicates |
| Compliance complexity | Annual distribution resolutions required | More predictable but less adaptable |
For most Australian small business owners holding shares in a private company, a discretionary trust is the better choice. The ability to shift income between beneficiaries each year is the main tax advantage, and you can’t do that with a unit trust. Lawpath advisers consistently recommend discretionary trusts over unit trusts for family-owned business structures, specifically because of that distribution flexibility.
What are the advantages of holding shares in a trust?
Income splitting and tax planning
This is the main reason most people use the structure. When a company pays a dividend to a trust, the trustee can then distribute that income to whichever beneficiaries have the lowest marginal tax rate in that financial year.
Say your company earns $200,000 profit after tax. It pays a franked dividend to the trust. You have a partner with low income that year. The trustee resolves to distribute $80,000 to your partner, $80,000 to you, and retains the rest or distributes to another beneficiary. Your partner pays tax at a much lower rate than you would on the full amount. The franking credits attached to the dividend reduce both your tax bills further. The ATO publishes detailed guidance on how trust income is taxed for beneficiaries.
One pattern Lawpath accountants see repeatedly: small business owners don’t use this flexibility. They distribute to the same beneficiaries in the same proportions every year out of habit, when the whole point of a discretionary trust is that the trustee can choose differently each year based on who has the lower tax position. Done well, this creates meaningful tax savings over time.
Asset protection
Because the shares are legally owned by the trustee (not by the beneficiaries personally), a beneficiary’s personal creditors generally cannot access trust assets to satisfy the beneficiary’s debts. The shares sit outside the beneficiary’s personal estate.
This protection has limits. If a trustee has been acting dishonestly or has incurred debts as trustee, creditors may be able to reach trust assets. Asset protection is strongest where the trust is properly set up and maintained. The protection doesn’t apply if the trust structure is put in place specifically to defeat existing creditors , courts can unwind those arrangements.
The cleanest protection comes from combining a trust shareholding structure with a trading company that limits liability at the operating level. The company takes on the business risk; the trust holds the value.
Succession planning
Passing company shares to the next generation through a trust is significantly smoother than doing it personally. Trust assets don’t form part of a deceased beneficiary’s estate in the same way personal assets do. They also avoid probate , which saves time, cost, and keeps family business affairs private.
Control doesn’t have to mean ownership, either. You can retain control of the trust via the appointor role while distributing income to adult children or other family members. This is particularly useful for business owners who want to bring the next generation into the financial benefits of the business before formally handing over control.
In some circumstances, transferring trust control rather than selling shares can also avoid or defer capital gains tax. The tax implications depend heavily on how the trust deed is structured, so this is worth discussing with an accountant before making changes.
The 50% CGT discount
If the trust holds shares for more than 12 months and those shares are then sold at a profit, the capital gain may qualify for the 50% CGT discount. The discount applies at the beneficiary level when the capital gain is distributed. This can make a trust-held share structure significantly more tax-effective for business exits than personal shareholding, depending on each beneficiary’s individual tax position.
What are the disadvantages and tax traps to watch for?
The 30 June distribution deadline
This is the most commonly missed obligation in trust structures. The trustee must pass a distribution resolution before 30 June each year. If the trust receives dividend income from the company and that income isn’t distributed to beneficiaries by 30 June, the ATO taxes the undistributed amount at 47% (the top marginal rate plus Medicare levy).
The resolution doesn’t have to result in cash actually changing hands by 30 June. It just needs to be signed and dated before then. But it has to happen. Missing this deadline by even a day is expensive, and it happens more often than people expect, especially in the first year of a new structure when the compliance rhythm isn’t yet established.
Minor beneficiaries are taxed at penalty rates
Trust distributions to children under 18 are generally taxed at 47% under the Income Tax Assessment Act 1936 (Cth) rules on excepted trust income. The idea of distributing income to your kids to minimise tax doesn’t work in practice unless those children are earning genuine employment income from the trust’s business. For most family trust structures, distributions to under-18 beneficiaries make no tax sense.
Division 7A: a real risk for private company shareholdings
If your trust holds shares in a private company, and that company makes loans, payments, or forgives debts to the trust or its beneficiaries, you may trigger Division 7A of the Income Tax Assessment Act 1936. Division 7A treats these amounts as unfranked dividends in the hands of the recipient , fully taxable, no franking credits.
This comes up when founders try to access retained earnings in the company informally. They draw from the company without formally declaring a dividend. Through a trust structure, those informal drawings can be caught by Division 7A and taxed harshly. Your accountant should be monitoring this every year.
The 47% family trust distribution tax
If your trust has made a family trust election (which gives access to certain tax concessions, like trust loss streaming), distributions outside the “family group” defined by that election can attract 47% family trust distribution tax. This is a trap when business circumstances change , for example, when a new business partner or investor receives trust distributions but sits outside the original family group.
Setup and ongoing compliance costs
A trust is not cheap to run. You’ll need to factor in: legal fees to draft and stamp the trust deed (stamp duty is levied by state revenue offices (the amount varies by state)), accounting fees for an annual trust tax return (typically $1,000 to $1,500 on top of your company return), and the cost of preparing annual distribution resolutions. Lawpath’s assisted trust setup service starts from $900 and includes a properly drafted deed ready for stamping. Budget for professional advice each year, not just at setup.
Lenders and investors may ask more questions
Banks sometimes require additional documentation when assessing lending applications for trust structures. They want to understand who controls the trust, who the appointor is, and whether there are conditions in the deed that could restrict distributions. Have your trust deed, any deed of variation, and your share register ready when you apply for finance. Some lenders also require personal guarantees from the individual beneficiaries and directors, which partially reduces the asset protection benefit.
How do you set up a trust to hold company shares?
The practical steps differ depending on whether you’re starting fresh or restructuring an existing shareholding.
Starting a new company with a trust as shareholder
This is the cleanest approach, and it’s what Lawpath advisers consistently recommend: set up the trust structure before the trading company starts earning revenue.
The reason is CGT. If you already hold shares personally and want to transfer them into a trust later, that transfer is a disposal for capital gains tax purposes. If the shares have increased in value, you’ll owe CGT on that gain. Starting with the trust as shareholder from day one avoids this entirely.
The steps, in order:
- Draft and execute a discretionary trust deed that names the corporate trustee, the appointor, and the beneficiary classes.
- Register the corporate trustee company (e.g. “Smith Holdings Pty Ltd”) , this is a separate company to your trading company.
- Lodge the trust deed with your state revenue office for stamping. The timeframe and cost vary by state , typically within 3 months of execution.
- Apply for a TFN and ABN for the trust (note: the corporate trustee itself does not need its own ABN for this purpose).
- Register the trading company and issue shares to the corporate trustee “as trustee for” the trust. The share register should reflect the full ATF notation.
- Ensure your company constitution doesn’t restrict the trustee from holding shares, and that any shareholders agreement reflects the trust structure.
Transferring existing shares into a trust
If you already own shares personally and want to restructure, this is a more complex exercise. The transfer is a taxable CGT event. Depending on how long you’ve held the shares and what the company is worth, the gain could be significant.
There are potential reliefs available. The small business restructure rollover under the Income Tax Assessment Act 1997 (Cth) may allow you to defer CGT when restructuring, if your business meets certain conditions. The small business CGT concessions may also reduce or eliminate the gain entirely. Both require specific conditions to be met, and you’ll need written tax advice from an accountant before relying on them.
Stamp duty may also apply on the share transfer, depending on your state. This is separate from the stamp duty on the trust deed itself.
What Lawpath advisers see in consultations
Across hundreds of consultations each year on trust structure questions, a few patterns come up consistently. These are the things generic articles don’t cover.
Timing is the most common mistake. Founders set up the trading company first, start generating revenue, and then decide to restructure into a trust structure later. By that point, the shares have value , and transferring them triggers CGT. The advice from Lawpath lawyers is consistent: if you’re going to use a trust structure, set it up before the company starts trading, or at least before it builds material value. The cost difference between doing it right from the start and restructuring later can run to tens of thousands of dollars.
Individual trustees create problems that corporate trustees don’t. Lawpath advisers regularly see clients who set up a trust with themselves as individual trustee rather than using a corporate trustee. When that individual later has a health issue, relationship breakdown, or bankruptcy, the trust structure becomes complicated and expensive to untangle. The upfront cost of registering a corporate trustee (a few hundred dollars via Lawpath’s company registration) is minor compared to the risk.
The trustee-as-sole-beneficiary problem. It comes up more than you’d expect. Someone sets up a trust, appoints themselves as trustee, and lists only themselves as beneficiary. This is not a valid trust structure. A trustee cannot be the only beneficiary , if they are, the trust merges with absolute ownership and ceases to exist as a trust at law. The deed must include other beneficiaries. In practice, this usually means listing a spouse, adult children, or even a bucket company as additional beneficiary classes.
The appointor role is frequently overlooked. Most clients focus on who is trustee and who are the beneficiaries, but the appointor (the person with the power to replace the trustee) is often left as an afterthought. In practice, whoever controls the appointor role controls the trust. Lawpath lawyers flag this in consultations because it matters for estate planning: if the appointor dies without a successor named in the deed, the trust can become difficult to administer.
The 30 June deadline catches people in the first year. New trust holders are often unprepared for the annual distribution resolution. The ATO doesn’t send reminders. Accountants who aren’t engaged ahead of time often don’t flag it until it’s too late. Setting a calendar reminder and engaging an accountant before the end of May each financial year is the simplest way to avoid the 47% penalty rate.
Frequently asked questions
Can a trust be listed as a shareholder in Australia?
Not directly. A trust is not a legal entity and cannot appear on a share register in its own name. What happens instead is that the trustee holds the shares in their own name “as trustee for” the trust, abbreviated as ATF. For example, a share register might show “Smith Holdings Pty Ltd ATF The Smith Family Trust” as the shareholder.
What is the difference between a trustee and a beneficiary?
The trustee is the legal owner of the shares and has control over how they are managed and how dividends are distributed. The beneficiary is the person or entity that benefits economically from the shares. In a discretionary trust, beneficiaries don’t have fixed entitlements , they have a right to be considered for distributions at the trustee’s discretion.
Can I be both the trustee and a beneficiary of a trust holding my company shares?
Yes, but not as the sole beneficiary. A trustee can also be a beneficiary, but if the trustee is the only beneficiary, the trust fails at law because there is no one separate from the trustee to benefit from it. You must include additional beneficiaries in the trust deed , such as a spouse, adult children, or a corporate beneficiary.
What is a corporate trustee and do I need one?
A corporate trustee is a company appointed to act as trustee rather than an individual person. Most advisers recommend using a corporate trustee for business structures because it provides continuity (the company doesn’t die or lose capacity), cleaner asset protection, and better separation between personal and trust affairs. The cost of registering a corporate trustee is modest compared to the risks of using an individual.
What tax rate applies if I don’t distribute trust income before 30 June?
Any undistributed trust income at 30 June is taxed at 47% , the top marginal rate plus Medicare levy. This is sometimes called the “penalty rate” for undistributed income. The trustee must pass a signed distribution resolution before 30 June each year to avoid this. The income doesn’t have to be physically transferred by that date, but the resolution must be in place.
Can a trust hold shares in a private company under Division 7A?
Yes, but care is needed. If the private company makes loans, payments, or debt forgiveness arrangements to the trust or its beneficiaries, Division 7A of the Income Tax Assessment Act 1936 (Cth) can treat those amounts as unfranked dividends , fully taxable. This is a real risk when founders informally draw funds from the company. Your accountant should review any such arrangements each year.
Does transferring my shares into a trust trigger capital gains tax?
Yes. A transfer of shares from personal ownership into a trust is a disposal for CGT purposes. If the shares have increased in value since you acquired them, you’ll owe CGT on the gain. Relief may be available under the small business restructure rollover or small business CGT concessions, depending on your circumstances. You should get written tax advice from an accountant before making any transfer.
Can a family trust hold shares in a company with external investors?
Yes, but it can complicate investor negotiations. External investors generally prefer fixed entitlements, which a discretionary trust doesn’t provide at the trust level. The more common approach is to structure the trust as a shareholder at the family/founder level while external investors hold shares in the trading company directly. A shareholders agreement should address how the trust’s votes are exercised relative to other shareholders.
A trust structure for holding company shares is one of the most powerful tools available to Australian small business owners. It’s not for everyone. The setup cost and ongoing compliance are real, but for businesses generating consistent profits and owners who want to plan ahead for the next generation, the advantages are substantial. The key is getting the structure right from the start rather than trying to fix it later.
Lawpath can help you set up a discretionary trust and corporate trustee structure with assistance from specialist lawyers, from $900. If you’d prefer to start with the document itself, the Discretionary Trust Deed template is available on the platform to get started today.
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Table of Contents
Trusts
A trust is a relationship where one party (the trustee) holds property for the benefit of someone else (the beneficiary). Trusts can exist in a number of ways and for different reasons. Although people often hold shares in companies, other companies and trusts themselves can also be shareholders. A common question that is asked revolves around what property can be held in trust. A trust is a fiduciary relationship. This means that a trustee owns property on behalf of a beneficiary. Beneficiaries can receive property in a number of ways, depending on the terms of the trust Deed and the trustee. Trusts are not legal entities themselves but legal relationships.
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Trustee
The trustee is the entity that holds the trust property. There can also be more than one trustee of a trust. Further, the trustee can be a person or a company (also known as a corporate trustee). In either case, the trustee has to be capable of holding trust property in their own right. Trustees owe the following duties to beneficiaries:
- To preserve the trust property
- Acting in good faith
- Loyalty to beneficiaries
- Impartiality
- Keep accurate records and information
Beneficiary
Beneficiaries are those who stand to benefit from the trust. Similar to a trustee, it can be a person or a company. A trustee can also be a beneficiary. However, they cannot be the sole beneficiary of the trust. Beneficiaries pay tax for trust property based on their individual income. Beneficiaries can be under the age of 18 or those lacking capacity to make legal decisions. In this case, trust can help ensure that someone is taken care of. Beneficiaries, once they receive the trust property, have full legal rights over it.
Discretionary trusts
Discretionary trusts are when the trustee chooses which beneficiaries receive the trust property, and how much of the trust property they get. The discretion is in the trustee having the option of splitting up the trust property however they like.
Unit trusts
Unit trusts are fixed, express trusts. Unlike discretionary trusts, unit trusts allocate the shares in the property for beneficiaries in the trust agreement, rather than discretion by the trustee. Each beneficiary is allocated a unit in the trust property beforehand.
Company ownership
Ownership of a company is allocated through shares. Each share generally accounts for a small percentage of the total ownership of the company. For example, if you start a company with a friend and you decide to divide ownership equally, you might decide to start your company by having 1000 shares available to be owned. You and your friend will each receive 500 shares, which you can sell. Further, you can arrange it so that a trustee owns the shares in the company.
Can a trust own shares in a company?
Technically, a trust cannot own shares in a company as it is not a separate legal entity
A trust is simply a relationship. However, this changes when we think about trustees and what they can hold for beneficiaries. Trustees can own many types of property, including liquid cash and property. A trustee can own company shares for the benefit of beneficiaries. For example, if you run your own company, you can set up a trust to hold your shares. If you’re the trustee, you can distribute profits from the trust to yourself. However, as with all trusts, a trustee cannot be the sole beneficiary. This means that you’ll also want to appoint other beneficiaries, such as family members to benefit from the trust.
Example
Collin Wilson is the trustee for the Wilson family trust. He is the director of his own company, ‘Wilson Enterprises Pty Ltd’. Collin wants to distribute some of the company dividends to his adult children, Alex, Madeleine and Nancy. Collin as the trustee, can distribute dividends to them through this structure.
Advantages of holding shares on trust
There are a number of advantages for holding company shares on trust. Although it may seem like a complicated way to structure ownership of your company, the benefits are significant. These include:
Asset Protection
Since the shares are legally owned by the trustee, there is scope for asset protection from third party creditors of beneficiaries. This mean it will be harder for a trustee to mismanage the shares, or act in a way contrary to the beneficiaries’ interests. Trustees need to be careful to ensure that they act in the best interests of beneficiaries and act in good faith.
Tax Planning
Due to the structure of a trust, a trustee can distribute income to the beneficiaries at their discretion. Therefore, if there are multiple beneficiaries, the trustee can select the beneficiary with the lowest marginal rate. This can be used to minimise tax obligations on assets that the trust holds, including company shares.
Ease of Succession
The structure of the trust allows for succession plans to be easily implemented. Control of the trust may be passed on to the next generation without triggering taxes such as capital gains or stamp duty.
Disadvantages
Individuals looking to establish a trust for the purpose of holding shares should be mindful of the potential disadvantages of adopting this approach.
Tax Implications
While there are tax advantages that arise out of using a trust, it does have its limitations. Minors are taxed at the highest marginal rate unless they are genuinely working for a salary. Further to this, any income that the trustee does not distribute by 30 June (the end of the current financial year) is taxed at a penalty rate.
Final Thoughts
The main advantages of holding shares in a trust are the tax benefits and asset protections for the beneficiaries. Overall, these advantages outweigh the disadvantages. A trust can be a great way to manage your finances and property – and this extends to companies.
