When a discretionary trust needs an ABN and the registration obligations

A discretionary trust does not need an ABN automatically. It needs one if it is carrying on an enterprise in Australia, and for most trading trusts that test is met from the first day of business. Getting this wrong is not a paperwork formality: an ABN is the gateway to almost every other business registration, and a trust that invoices without one can have tax withheld from its payments at the top marginal rate.

This article sets out who must register, the duties that attach once the trust has an ABN, and what happens if the trust does not comply. The core obligations are registering the trust for its own ABN, registering for GST when turnover hits the threshold, withholding PAYG when the trust employs staff, and keeping the trust's registration details current.

Who must register: the enterprise test for trusts

For ABN purposes a trust is an entity in its own right, separate from the people behind it. Under s 184-1 of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) (the GST Act), a trust is an entity and the trustee is taken to be the entity that acts for it. That matters because the ABN belongs to the trust, not to the trustee personally. The trustee applies for the ABN on the trust's behalf, but the registration sits against the trust.

The trigger for registration is set out in s 8 of the A New Tax System (Australian Business Number) Act 1999 (Cth) (the ABN Act). An entity is entitled to an ABN if it is carrying on an enterprise in Australia, or making supplies connected with the indirect tax zone in the course of carrying on an enterprise. "Enterprise" is defined in s 9-20 of the GST Act as an activity or series of activities done in the form of a business, in the form of an adventure or concern in the nature of trade, or on a regular or continuous basis in the form of a lease, licence or other grant of an interest in property.

Applying that test to a trust comes down to what the trust actually does:

• Trading trust: selling goods, providing services, running an online store or a consultancy. This is carrying on an enterprise, so the trust needs its own ABN before it trades.
• Property trust: leasing a property on a regular and continuous commercial basis. This falls within the enterprise definition, so an ABN is required.
• Passive investment trust: holding a share portfolio or managed fund investments without active dealing. This may not amount to carrying on an enterprise, in which case an ABN may not be required, although the trust still needs a tax file number (TFN) for income tax purposes.
• GST trigger: if the trust's GST turnover is or will be $75,000 or more, it must also register for GST, which requires an ABN first.
• Employment trigger: if the trust employs staff, the trustee must register for PAYG withholding.

Whether an activity amounts to an enterprise is ultimately a question of fact. The ATO looks at factors such as whether the activity is carried on with an intention to make a profit, how regularly and systematically it is done, and its scale and commercial character. A trust that merely holds passive investments and a trust that actively trades can look similar on paper, so it is worth having the position assessed rather than assuming.

Registering the trust for its own ABN

Where the enterprise test is met, the trustee applies to the Australian Business Register for an ABN, choosing "Trust" as the entity type. The application is made in the trustee's capacity as trustee for the trust, and the ABN is allocated to the trust. A common error is quoting the trustee's personal ABN or the ABN of a corporate trustee's own business on trust invoices. The trust's invoices must show the trust's own ABN, typically in a legal line such as "ABC Pty Ltd ATF The XYZ Family Trust".

The practical steps are straightforward:

• Confirm the trust deed: have the executed deed on hand, and identify the current trustee. If a company is trustee, have its ACN and details ready.
• Gather the details: trust name and date of creation, trustee details, a description of the business activity, contact details and an estimate of expected GST turnover.
• Apply: the trustee lodges the application with the Australian Business Register, selecting "Trust" as the entity type. The same application can include the TFN and, where needed, GST and PAYG registrations.
• Start invoicing correctly: once the ABN is issued, open a bank account in the trust's name and issue invoices in the trust's name showing the trust's ABN.

If the trust will trade under a brand name that is different from the trust's legal name, a business name will generally need to be registered with ASIC, and that name should sit alongside the legal trustee line on invoices.

GST registration once turnover reaches $75,000

Under s 23-5 of the GST Act, an entity carrying on an enterprise must register for GST if its GST turnover meets the registration turnover threshold. Section 23-15 sets the framework for that threshold, and the current threshold for most businesses is $75,000, based on either current turnover (the last 12 months) or projected turnover (the next 12 months). The threshold for non-profit bodies is $150,000.

A trust that starts a business expecting to reach the threshold in its first year must register from the start. A trust already operating must register within 21 days of its turnover crossing the threshold, as required by s 25-1 of the GST Act and confirmed by the ATO. Registration is possible below the threshold on a voluntary basis, which some trusts choose so they can claim input tax credits, but once registered the trust generally stays registered for at least 12 months.

Two practical points flow from the GST rules. First, the ATO requires an entity to have an ABN before it can register for GST, which is why the ABN comes first. Second, if a trust fails to register when it should, GST is payable on sales made since the date it was required to register, even if GST was never added to the price, and penalties and interest can apply on top.

PAYG withholding when the trust employs staff

A trust that employs staff must withhold pay as you go (PAYG) tax from payments to those employees. Under s 12-35 of Schedule 1 to the Taxation Administration Act 1953 (Cth), an entity must withhold an amount from salary, wages, commissions, bonuses or allowances it pays to an individual as an employee. The trustee registers for PAYG withholding, withholds the amounts from each pay run, and reports and remits them through the business activity statement.

The PAYG obligation is separate from the ABN question. A trust can need to withhold PAYG even where it would not otherwise be near the GST threshold. The same structure also carries the trust's obligations as an employer more broadly, including superannuation guarantee payments for eligible employees, so the payroll side of running a trust deserves the same attention as the registrations.

Keeping the trust's registrations current

An ABN is not a once-off registration. Under s 14 of the ABN Act, the trustee must notify the Registrar of any change to the particulars held on the Australian Business Register within 28 days of becoming aware of the change. That covers changes of trustee, changes to contact details, and changes to the business activities recorded against the ABN. A change of trustee is a common example: the ABN record should be updated to reflect the new trustee acting for the trust, and the trust's bank accounts and invoices updated at the same time.

Registrations can also be cancelled. If a trust stops carrying on an enterprise, the ABN can be cancelled, and if turnover drops below the GST threshold the trust can apply to cancel its GST registration. The trustee should not simply stop lodging: formal cancellation avoids ongoing obligations and keeps the record clean for when the trust resumes activity or is wound up.

What happens if the trust does not comply

The most immediate consequence of trading without an ABN is withholding by customers. Under the no-ABN withholding rules, when a customer pays a supplier for goods or services totalling more than $75 (excluding GST) and the supplier does not quote an ABN, the customer must generally withhold the top rate of tax, currently 47 per cent, and pay it to the ATO. For a trading trust that means losing nearly half of every invoice from customers who comply with their withholding obligations, until the trust quotes its ABN.

Failure to register for GST when required carries a separate cost. The ATO can require GST on all taxable sales back to the date the trust was required to register, even though the trust never collected GST from customers, with penalties and interest added. For a trust that crosses the threshold unnoticed, that liability can dwarf the compliance cost of registering on time.

There is also a structural point that trustees often miss. The ATO deals with the trustee, not with the trust as a separate person. The trustee is personally liable for the trust's tax obligations, subject to a right of indemnity out of the trust assets. This is one reason many trading trusts use a company as trustee, so that the company, rather than an individual, bears the exposure. The choice of trustee structure is a legal decision best made with advice before the trust starts trading.

Compliance checklist

Work through these steps as the trust starts up, and keep the registrations current from then on:

• Confirm the trust deed is executed and identify the current trustee before applying.
• Apply for the trust's own ABN with entity type "Trust", lodged by the trustee, before trading or issuing invoices.
• Apply for the trust's TFN at the same time; the trust needs one even if it is purely passive.
• Register for GST within 21 days of current or projected turnover reaching $75,000.
• Register for PAYG withholding before the first payment to any employee.
• Show the trust's ABN and the correct "as trustee for" legal line on every invoice.
• Open a dedicated trust bank account and keep trust funds separate from personal or company funds.
• Notify the Australian Business Register within 28 days of changes to the trustee, address or business activities.
• Register a business name with ASIC if trading under a brand that differs from the trust's legal name.

When to involve a lawyer and an accountant

The registration steps themselves are usually handled by the trustee, often through a registered tax agent. An accountant's role is to work out whether the trust's activities amount to an enterprise, project GST turnover, and keep the BAS and payroll obligations running. That assessment matters because the enterprise test, not a turnover figure, determines whether an ABN is required in the first place.

A lawyer's role is different and sits around the edges of registration. Before the trust trades, a lawyer can review the trust deed to confirm the trustee has power to carry on the business, borrow, and enter contracts, and can advise on whether an individual or a corporate trustee better suits the trust's risk profile. When a trustee changes or the trust deed needs updating, legal input ensures the deed, the ABN record and the bank mandates all stay consistent. A lawyer can also prepare the trustee resolutions that record decisions such as opening the trust bank account and approving distributions.

The passive-to-trading shift that catches trusts out

The misstep that costs trusts the most is not the obvious one of trading without an ABN from day one. It is the quiet shift from passive to active. A family trust set up to hold shares and a holiday property starts renting the property out on a commercial basis, or one of the beneficiaries begins running a side business through the trust, and no one notices that the trust has crossed from passive investment into carrying on an enterprise. The ABN that was never needed is now required, the turnover may have crossed the GST threshold months earlier, and the no-ABN withholding and backdated GST consequences start to stack up.

The first action for any trustee this week is simple: pull out the trust deed, identify the current trustee, and check which ABN appears on the trust's invoices, if any. If the trust is trading and has no ABN of its own, that gap should be closed before the next invoice goes out.