I operate a discretionary family trust. It is my understanding that any trust profit must be distributed in full each year, otherwise some 47% tax will be levied. I’m not sure if the undistributed profits can subsequently be paid as franked distributions.

I don’t think it is correct that profits on sale of assets can be re-invested in new assets to avoid tax liability, since profits are revenue and asset purchases are not.

There are also serious traps if a beneficiary leaves their distribution in the trust as a “loan” or puts cash into the trust to aid cash flow. The tax office will regard the repayment of these “loans” as further distributions and will tax them in the hands of the beneficiary – unless there is full “commercial” loan documentation signed, sealed and delivered at the time of the transaction.

I will shortly be establishing a Property Trust as distinct from a Discretionary or Family Trust, for the purposes of investing in property. I have yet to establish if the rules are different regarding profit distribution, but I expect that they will be similar to Company rules. Investment in the trust will be by unit purchase so retained profits will be reflected in higher unit prices. Hopefully this structure can be created to provide protection of personal assets and limitation of liabilities, etc.