Trusts are among the most frequently used structures in Australian family businesses, property portfolios, and professional practices. They offer income distribution flexibility, asset protection, and tax planning possibilities — but they also create bookkeeping and accounting complexity that sole trader or company engagements don't involve.
This guide covers the key bookkeeping obligations for the two most common trust types: discretionary (family) trusts and unit trusts. It is written for bookkeepers and CAs who manage trust clients, not for the trustees themselves.
Trust structures: a quick primer
A trust is a legal arrangement where a trustee holds assets on behalf of beneficiaries according to the terms of a trust deed. For tax purposes, trusts are not taxpayers in the same way individuals or companies are — the trust's net income is distributed to beneficiaries who pay tax in their own names.
Discretionary (family) trust: The trustee has discretion to distribute income and capital among a defined class of beneficiaries. Income distributions are decided at year-end, subject to the trust deed. Widely used for family business income splitting.
Unit trust: Beneficiaries hold units (like shares) in the trust. Income is distributed in proportion to unit holdings. More rigid than discretionary trusts — income goes to unit holders in proportion to their units.
Hybrid trust: Combines discretionary and unit elements. Less common and more complex — refer to the specific deed.
Bookkeeping obligations specific to trusts
1. Trustee entity vs trust accounts
A trustee company (a company acting as trustee of the trust) has its own legal identity — it may have its own bank account, ABN, and GST registration. But its books should not be confused with the trust's books. The trustee holds assets on behalf of the trust; the assets belong to the trust, not the company.
In practice, many small trusts use the trustee's ABN for GST registration and banking. Bookkeepers must maintain clarity about which transactions belong to:
- The trust's trading activities (income, expenses, assets)
- The trustee company's own activities (if it trades separately, which is less common)
- Inter-entity transactions (loans between the trust and related entities)
A common error is coding trust distributions to beneficiaries as business expenses — they are not. Trust distributions are allocations of net income, not deductible expenses of the trust.
2. GST registration and BAS obligations
A trust is a separate entity for GST purposes. If the trust conducts enterprise activities (trading, property rental, etc.) with GST turnover above $75,000, it must register for GST and lodge a BAS.
The BAS is lodged under the trust's ABN — not the trustee's individual or company ABN. Bookkeepers managing trust clients need separate ATO agent authority for the trust ABN.
For property trusts that hold residential rentals: residential rental income is input-taxed (not subject to GST, cannot claim full ITCs on related expenses). For trusts holding commercial property: GST applies on rent, and ITCs are available on expenses.
3. Loan accounts and Division 7A
Many discretionary trusts involve loans between the trust and related parties — typically, a trustee company lending money to the trust, or the trust making payments to beneficiaries before the year-end distribution resolution.
Division 7A is the ATO provision that causes unpaid trust distributions and loans between private companies and associated entities to be treated as unfranked dividends if not managed correctly. For bookkeepers:
- Unpaid present entitlements (UPEs) owed by a trust to a corporate beneficiary are within the Division 7A framework from 1 July 2022
- If a private company is a beneficiary of a trust and receives a UPE that is left on a sub-trust or set aside, the ATO's Division 7A rules may require a complying loan agreement or inclusion in the company's assessable income
Bookkeepers should flag any unpaid trust distributions to corporate beneficiaries to the client's tax agent before 30 June each year. The tax agent will assess Division 7A implications.
4. Trust distribution resolutions
One of the most important year-end tasks for a discretionary trust client is the trustee resolution. By 30 June each year, the trustee must make a written resolution specifying how net income will be distributed among beneficiaries. Without a valid resolution, the ATO may tax the trust's net income at the top marginal rate.
As a bookkeeper, your role is not to advise on the distributions (that's the tax agent's job) — but to ensure:
- The accounts are reconciled before 30 June so the trust's net income can be estimated
- The tax agent has the information they need to advise the trustee
- The resolution is stored with the trust's permanent file
Many distribution disputes and ATO queries arise because the bookkeeper didn't close the accounts in time for the tax agent to review before 30 June.
Chart of Accounts for trusts
A trust's Chart of Accounts differs from a company's in several key areas:
Income accounts: Trust income flows (trading income, rent, dividends, interest received) should be coded to income accounts clearly distinguishing the nature of income — this matters for streaming provisions (where franked dividends and capital gains can be specifically allocated to certain beneficiaries).
Capital vs revenue distinction: Trusts must distinguish capital receipts from income receipts for tax purposes. Capital gains are subject to different rules than ordinary income. The bookkeeping should maintain this distinction throughout the year, not attempt to reconstruct it at year-end.
Beneficiary loan accounts: When the trust makes a payment to or on behalf of a beneficiary during the year (before the distribution resolution), code this to the relevant beneficiary's loan account (liability). At year-end, when the distribution resolution is made, the distribution is applied against the loan account. If a beneficiary received more during the year than they're entitled to under the distribution, they owe the balance back to the trust.
Trustee fee: If the trustee is entitled to a fee under the trust deed, this is an expense of the trust. Many family trusts do not pay a trustee fee.
Distributable income vs taxable income
Trust net income for tax purposes (assessable income less deductions) is not necessarily the same as accounting net income. Differences arise from:
- Non-deductible expenses (entertainment, non-compliant expenses under Div 26)
- Timing differences (depreciation methods, prepayments)
- Tax adjustments (capital works deductions not in the accounts)
- Non-assessable receipts (insurance proceeds, some gifts)
The trust's distributable income is set by the trust deed — typically a close approximation of accounting income, but often with specific exclusions or inclusions defined in the deed. The tax agent calculates the tax net income separately.
Bookkeepers should not assume that the accounting profit they produce equals distributable income. Flag to the tax agent any unusual receipts or expenses that might cause a divergence.
Common mistakes bookkeepers make with trust accounts
Coding distributions as expenses
Trust distributions to beneficiaries are allocations of net income — not operating expenses of the trust. Coding a $50,000 distribution to a beneficiary as a "distribution expense" understates the trust's net income and gives the tax agent incorrect figures.
Correct coding: Debit the beneficiary's equity/loan account; credit cash (if the distribution was paid) or credit a beneficiary payable (if the distribution was resolved but not yet paid).
Missing loan account entries
When a trust pays an expense on behalf of a beneficiary (school fees, personal credit card, etc.), this is a loan from the trust to the beneficiary — not a trust expense. Code to the beneficiary loan account. Failure to do this understates the trust's assets and creates an incorrect net income figure.
Not separating capital gains
If the trust sells a capital asset during the year, the proceeds and cost base must be tracked separately from trading income. Booking the entire sale proceeds as income (without netting the cost base) overstates income and produces an incorrect tax liability.
Treating the trustee company's expenses as trust expenses
If the trustee company pays its own ASIC fees, registered office costs, or professional indemnity insurance, these are the company's costs — not the trust's. They should be coded to the company's accounts, not the trust's.
Using Reconlink for trust clients
Reconlink supports trust clients through the same bank feed and reconciliation workflow used for company and sole trader clients. Specific considerations:
Multiple entities: Many trust structures involve a trust and a trustee company with separate bank accounts. Both can be managed in Reconlink under a single client profile.
Loan account reconciliation: The trust's bank feed shows cash movements. Amounts drawn by beneficiaries need to be coded to the relevant beneficiary loan account in the Chart of Accounts, not to income or expense accounts.
Year-end timing: Ensure all trust accounts are reconciled by 30 June. The tax agent needs the accounts closed before the trustee resolution can be finalised.
For a walkthrough of BAS preparation for trust clients, see How to prepare a BAS for an Australian accounting practice.
Frequently asked questions
Does a trust need to lodge its own tax return?
Yes. A trust lodges an annual trust tax return (TFN Tax Return: Trust), which shows the trust's net income and how it was distributed. Individual beneficiaries include their share of trust income in their personal tax returns. The trust itself does not pay tax on distributed income, but may pay tax at the top marginal rate on undistributed income (or income to non-resident/minor beneficiaries in some cases).
Can a trust be registered for GST?
Yes. A trust that conducts an enterprise and exceeds the $75,000 GST registration threshold must register for GST. The registration is in the trust's name (using the trust's ABN), not the trustee's name.
What happens if the trustee resolution is not made by 30 June?
The ATO may treat all undistributed trust net income as assessable to the trustee (at the top marginal rate plus Medicare levy) under section 99A of the Income Tax Assessment Act 1936. This is an avoidable outcome that requires the bookkeeper to close accounts in time for the tax agent to advise the trustee before 30 June.
Are distributions to minors from family trusts taxed differently?
Yes. The Tax Office applies punitive tax rates to distributions of trust income to minors (under 18) under the "kiddie tax" rules in Division 6AA. Certain types of income are exempt (employment income, for example), but passive trust distributions to minors are taxed at 47% up to the relevant threshold. This is a tax agent issue, but bookkeepers should flag any distributions to minor beneficiaries for tax agent review.
This article was last reviewed on 27 May 2026. Trust taxation is complex and changes frequently. Always consult a registered tax agent before making trust distribution decisions. This is general guidance, not specific tax or legal advice.