Australia Trust & Partnership Tax Guide
Australian trust and partnership taxation. The guide covers: the discretionary trusts (the "family trusts") — the discretionary trust is the most common trust structure in Australia for the small businesses and the investment groups; the trustee (the "trustee" — the individual or the company) has the discretion to distribute the trust income (the "net income of the trust") among the beneficiaries (the "beneficiaries") in each income year; the beneficiaries include the trust distributions in the assessable income (the "share of the net income of the trust") and pay the tax at the personal marginal rates; the trust can "stream" the income to the beneficiaries with the lower tax rates (the "income streaming" — the "trust streaming" rules from 1 July 2011); the trust can also "stream" the capital gains and the franked distributions (the "capital gain streaming" and the "franking credit streaming"); the trust loss rules (the "trust loss rules") — the trust losses (the "tax losses of the trust") can be carried forward and offset against the future trust income; the trust loss rules require the "same business test" or the "similar business test" to carry forward the losses; the trust losses cannot be distributed to the beneficiaries; the trustee beneficiary statement (the "TBS") — the trust must provide the "trustee beneficiary statement" (the "TBS" — the "Section 98A statement") to the ATO if the trust makes the "present entitlement" to the beneficiary who is under the legal disability (the "minor beneficiary"); the Personal Services Income (PSI) rules — the PSI rules apply to the individuals who provide the services through the trust (or the company or the partnership) and the income is mainly the reward for the personal efforts or the skills of the individual; the PSI rules require: (a) the PSI must be allocated to the individual (the "PSI allocation" — the individual must include the PSI in the personal assessable income), (b) the PSI entity cannot claim the deductions that are not related to the generation of the PSI (the "PSI deductions" — the "business deductions" such as the rent, the advertising, the travel, the home office are NOT deductible against the PSI), (c) the PSI entity cannot split the income with the family members (the "PSI income splitting" is not allowed); the PSI rules do NOT apply if the individual passes the "results test" (the "results test" — the individual is paid for the result achieved, not for the time spent, and provides the tools and the equipment, and is liable for the defects in the work); the partnership tax — the partnership is the relationship between the persons (the "partners") who carry on the business in common with the view to the profit; the partnership does NOT pay the tax; the partnership must lodge the partnership tax return (the "Partnership Tax Return" — the form "Partnership Tax Return 2025") by the 15 May 2026 (if the partnership uses the tax agent); each partner pays the tax on the "share of the net income of the partnership" (the "partnership distribution") at the personal marginal rates (for the individuals) or the corporate rate (for the companies); the partnership losses (the "partnership losses") are allocated to the partners according to the partnership agreement and can be offset against the other income of the partners (subject to the "non-commercial loss" rules); the corporate beneficiaries (the "corporate beneficiaries") — the company can be the beneficiary of the trust; the trust can distribute the income to the company at the corporate tax rate (25% or 30%); the company can pay the dividends with the franking credits to the individual shareholders; the trust distribution to the company is included in the assessable income of the company and is taxed at the corporate rate; the company can "stream" the trust income to the company to retain the profits at the corporate rate (the "corporate beneficiary strategy"); the trustee of the deceased estate — the deceased estate trust is the trust established upon the death of the individual; the trustee of the deceased estate must lodge the trust tax return (the "trustee of the deceased estate tax return") and pay the tax at the marginal rates (the "trustee of the deceased estate tax rates" — the same as the individual rates but without the tax-free threshold for the first 3 years). All amounts in Australian Dollars (AUD). For related reading, see our Starting a Business Guide → and Corporate Tax Guide →.
Trust Income Streaming
- Present entitlement: The beneficiary must be "presently entitled" to the trust income (the "present entitlement" — the beneficiary has the legal right to demand the payment of the trust income). The trustee must make the trust resolution (the "trust resolution" — the "minutes of the trustee meeting") before 30 June of each year to determine the distribution of the trust income.
- Capital gains streaming: The trust can stream the capital gains to the specific beneficiaries (the "capital gain streaming" — the "specific entitlement" to the capital gains under the "Trust Streaming Rules" from 1 July 2011). The beneficiary receives the capital gain with the 50% CGT discount (if applicable) and the franking credits.
For the trust loss rules and the trust registration, see our Starting a Business Guide →.
PSI Rules
- PSI test: The PSI rules apply if more than 50% of the income from the personal services is from ONE client (the "80/20 rule" — the PSI rules apply if more than 80% of the PSI is from one client, but the "12-month rule" and the "unrelated clients test" may apply). The individual must apply the PSI rules if the income is mainly the reward for the personal efforts or the skills.
- Results test: The PSI rules do NOT apply if the individual passes the "results test": (a) the individual is paid for the result achieved (the "result"), (b) the individual provides the tools and the equipment (the "tools"), (c) the individual is liable for the defects in the work (the "defects liability"). The individual must satisfy ALL THREE limbs of the results test.
For the corporate beneficiary strategies and the trust tax return lodgement, see our Corporate Tax Guide →.