Establishing a trust with a corporate trustee, step by step

You have decided your business needs a trust. Perhaps profits have outgrown a sole trader structure, family members are coming in and you want flexibility in how income is shared, or an accountant has suggested a discretionary trust for asset protection and distribution flexibility. In a trust, a trustee holds assets for the benefit of others according to the rules in a trust deed. You have also decided the trustee should be a company rather than you personally. This guide walks through the whole process of establishing a trust with a corporate trustee in the order the steps actually happen, and flags where people get held up.

When the process is finished you will have a proprietary company registered with ASIC acting as trustee, a signed trust deed that sets the rules, a settled trust with its own tax file number (TFN) and Australian business number (ABN), a bank account in the trust's name, and a minute book recording the opening decisions. One thing owners commonly assume is that the trust itself gets registered somewhere, the way a company does. It does not. There is no trust register at ASIC. The company goes on the companies register; the trust comes into existence when the deed is executed and settled. Keeping that distinction in mind explains most of the steps below.

What you need before you start

Collect the following before the process begins, because each item gates a later step:

A decision on trust type: a discretionary trust lets the trustee choose how income and capital are distributed among a pool of beneficiaries, which suits family businesses. A unit trust gives beneficiaries fixed entitlements in proportion to the units they hold, which suits unrelated investors who want defined shares.
The cast of characters: the settlor provides the initial settlement sum; the trustee is the company you will incorporate; the appointor is the person or entity who can replace the trustee where the deed provides for one; and the beneficiaries or unit holders are who the trust exists for.
A company name: check that the name is available and, if you want certainty while you organise everything else, reserve it with ASIC on Form 410. A reservation lasts up to two months.
Directors who can act: every director needs a director identification number, applied for through the Australian Business Registry Services before the company is registered. A proprietary company must also have at least one director who ordinarily resides in Australia: s 201A of the Corporations Act 2001 (Cth) requires the sole director of a single-director proprietary company to be an Australian resident, and at least one director where there are more.
Identity and consent paperwork: proof of identity and home addresses for each officeholder, the proposed share structure, and written consents from the proposed directors, secretaries and shareholders.
Money for fees: ASIC charges a registration fee and an annual review fee, both indexed each year on 1 July, plus professional fees for the deed and constitution.

The prerequisites that trip people up are the director ID, which takes time to obtain, and the resident director rule. If every proposed director lives outside Australia, a proprietary company with a single director cannot be registered, so the residency question needs to be answered before you start.

The steps, in the order they happen

Decide the trust type and fix the roles

Choose between a discretionary trust and a unit trust before anything else, because the deed, the company constitution and the registrations all flow from that choice. Then identify who fills each role:

Settlor: provides the nominal settlement sum and usually has no further role.
Trustee: the company that holds the assets and runs the business in accordance with the deed.
Appointor (if the deed provides): holds the power to remove and appoint the trustee. This is the real control lever in many deeds, so decide who holds it and what happens to that power on death or incapacity.
Beneficiaries or unit holders: who receives income and capital.

Incorporate the trustee company

Register the company through the Business Registration Service, which is also how you will handle the trust's ABN and TFN later. You will need the company name, the state or territory of registration, a registered office address, a principal place of business address, the share structure, the officeholders and their director IDs, and written consents. ASIC's guidance on registering a company sets out each of these building blocks. Registration takes about 15 minutes online and ASIC generally sends confirmation within two business days, along with the company's ACN, a certificate of registration, and a corporate key posted to the registered office.

You also choose how the company is run internally. A company may be governed by the replaceable rules in the Corporations Act 2001 (Cth), by a constitution, or by a combination of both: s 134. Many owners of trustee companies adopt a tailored constitution because it can restrict who can hold shares and how decisions are made, which matters when the company's main function is to act as trustee.

Remember that only the company is registered with ASIC. The trust is not on any register, and a company can act as trustee for any number of trusts.

Have the trust deed drafted and executed

The deed is the foundation document. It sets out the trust name and type, the class of beneficiaries, the appointor's powers, how distributions are made, the trustee's powers, and the rules for varying the deed and for the trust's vesting date. Powers to borrow, grant security, acquire and dispose of assets, and carry on a business should be explicit, because the trustee cannot act beyond what the deed permits.

Execution is where a surprising number of structures go wrong. Under s 127 of the Corporations Act 2001 (Cth), a company executes a document by signature of two directors, or a director and a company secretary. A proprietary company with a sole director who is also the sole secretary, or which has no secretary, can execute with that director's signature alone. A deed must also be expressed to be executed as a deed, and state law can impose additional requirements for deeds, such as witnessing. Electronic signing is now permitted under the technology-neutral signing rules in Part 1.2AA of the Act, but get advice before relying on it for a deed.

Have your accountant review the deed before it is signed. Tax settings such as eligibility for a family trust election, the definition of income in the deed, and the default beneficiary provisions all affect how the trust will be taxed from year one.

Settle the trust and pass the opening resolutions

The settlor provides the settlement sum required by the deed, usually a nominal amount of $10 or similar. Many deeds require the settlor to be independent of the trust, so check whether your deed prohibits the settlor from being a beneficiary, director or related party before choosing who fills that role.

The trustee company's board then passes its opening resolutions:

Accept the role of trustee of the trust.
Approve opening bank accounts and appoint signatories.
Approve the initial distribution processes.
Authorise any opening borrowings or the execution of leases.

Keep a minute book from day one. The resolutions, the executed deed and the consents are the records a bank, an auditor or a future buyer will ask to see.

Register the trust's TFN and ABN, and GST if required

The trustee registers the trust's TFN and ABN in its capacity as trustee. The Australian Taxation Office is explicit that this registration is separate from any registration the company holds in its own right, and that a trust should have its own TFN, which the trustee uses when lodging the trust's tax returns. A trust is entitled to an ABN if it is carrying on an enterprise, and the ABN will automatically carry the name "The Trustee for..." followed by the trust's name.

Register for GST if the trust's GST turnover is $75,000 or more, or is likely to reach that threshold in the first year. Under the ATO's GST registration rules, registration must happen within 21 days of the threshold being exceeded, and an ABN is required first.

Open the trust bank account and set up the records

Banks will want the executed deed, the trust's ABN and TFN, and the trustee company's details before opening an account in the trust's name. Keep trust money strictly separate from the company's own money and from any personal accounts. Co-mingled funds make it harder to show that the company was acting as trustee, and they undermine the asset protection the structure is meant to provide.

Set up a folder for the trust's records: the executed deed, any variations, the board minutes, distribution resolutions, and records of appointments and removals of trustees.

Move assets in and contract as trustee

From the day the trust starts trading, contracts, leases, invoices, insurance policies and bank documents should name the trustee company "as trustee for" the trust, using the full trust name. If existing assets are being moved into the trust, get advice before you transfer them. Transfer duty rules vary by state, and a transfer can also trigger capital gains tax, so the cost of moving an existing business into the trust should be modelled before anything is signed.

If the trust borrows and grants security over personal property such as equipment, receivables or intellectual property, the lender will usually register its security interest on the Personal Property Securities Register. Priority between competing security interests is decided under the Personal Property Securities Act 2009 (Cth), and a registration that is missed or defective can cost a lender priority, which is one reason the deed's borrowing powers and board approvals should be sorted out before the loan documents are signed.

Set up the annual compliance calendar

A trust with a corporate trustee is not a set-and-forget structure. Each year the trustee must:

Pass a distribution resolution by 30 June making beneficiaries presently entitled to the trust's income, unless the deed requires an earlier date. A specific entitlement to capital gains must be recorded by 31 August, and to franked dividends by 30 June.
Keep written records of the resolutions. The ATO's resolutions checklist is clear that a written record is essential if you want to stream capital gains or franked distributions for tax purposes.
Lodge a trust tax return. A trustee is required to lodge one regardless of the amount of net income, unless the ATO advises otherwise.
Deal with the trustee company's ASIC obligations, including checking and updating company details, paying the annual review fee and passing a solvency resolution on the annual statement.
Withhold tax from distributions to beneficiaries of closely held trusts who have not quoted their TFN to the trust.

Where the process goes wrong

The same mistakes recur across most structures, and each one is expensive in a different way:

A missed 30 June resolution: if no beneficiary is made presently entitled by the end of the income year, the trustee can be assessed on the undistributed income at the top marginal rate under s 99A of the Income Tax Assessment Act 1936 (Cth). The ATO's resolutions checklist sets out what an effective resolution requires. This is the most expensive single mistake in the annual cycle.
A deed signed by only one director: where s 127 of the Corporations Act 2001 (Cth) requires two, or a document that is not expressed to be executed as a deed. The trust can end up with an unenforceable deed and a bank or lender that refuses to deal with it.
Variation of income resolutions: trustees sometimes try to fix an ineffective distribution with a resolution that redistributes income if the ATO later adjusts the trust's assessable income. As the Full Federal Court explained in Lewski v Commissioner of Taxation [2017] FCAFC 145, which the ATO discusses in its resolutions checklist, these resolutions create genuine doubt about who is presently entitled and often fail to achieve the intended outcome.
Acting outside the deed: directors can be personally liable for trust debts under s 197 of the Corporations Act 2001 (Cth) if the company breaches trust, acts outside its powers as trustee, or the deed denies or limits the company's right to be indemnified out of trust assets. A company limited by shares does protect shareholders, whose liability is capped at any unpaid amount on their shares under s 516, but it is not a complete shield for directors.

Where a lawyer is needed

Several points in this process call for a lawyer rather than just benefit from one. The steps a legal practitioner will take include advising on whether a discretionary or unit trust fits your control and investment plans, working with your accountant on the tax settings, drafting the trust deed and the trustee company's constitution, checking that execution complies with s 127 of the Corporations Act 2001 (Cth), preparing the opening board resolutions, reviewing the deed's powers before any borrowing or asset transfer, drafting variations when the deed allows them, and planning succession around the appointor power and the shares in the trustee company. A lawyer will also flag state transfer duty and CGT before existing assets move into the trust, which is where owners who do everything else well still get caught.

The trust deed decides whether the structure works

The single thing that determines whether this entire process succeeds is the trust deed, because every later step hangs off its terms. The bank account, the contracts, the borrowing, the 30 June distributions and the succession plan all depend on what the deed says the trustee may do, who may benefit, and who holds the appointor power. A deed drafted to the business's actual plans, reviewed by an accountant before signing and executed correctly under s 127 of the Corporations Act 2001 (Cth), is what turns a corporate trustee structure from a tax idea into a working business vehicle. Skimping on it, or signing it with one director and hoping, is the mistake that shows up years later in a lender's refusal, a missed distribution or a director's personal liability.

The key points to carry into the process are these. The trust is created by deed and settlement, not by any registration; only the trustee company is registered with ASIC. Incorporate the company first with directors who hold director IDs and meet the residency rule. Execute the deed properly, settle the trust with an independent settlor, and register the trust's own TFN and ABN through the trustee. Open a separate bank account, contract only as trustee, and keep the annual discipline of a written distribution resolution by 30 June. With the deed right and the calendar kept, a trust with a corporate trustee is a durable structure that can carry a business through growth, investment and succession.