When a family trust sells a business in Australia, the trustee executes the sale — not the business owner personally. The trust is the legal seller, and capital gains flow through to beneficiaries who include them in their own tax returns for that financial year. Australian family trusts can access the 50% CGT discount and the small business CGT concessions, which together can reduce the tax on a $3 million sale to a fraction of what it would otherwise be. The catch is that these concessions don’t apply automatically — they require planning, usually twelve months or more before settlement.
How a Family Trust Holds a Business in Australia
Most Australian SME owners who use trusts operate through one of two structures.
The first is a trading trust: the trustee — typically a company controlled by the owner, something like “Smith Holdings Pty Ltd as trustee for the Smith Family Trust” — directly operates the business. The trustee holds the goodwill, plant and equipment, and contracts in its trustee capacity. Staff are employed by the trustee. When the business is sold, the trustee sells those assets to the buyer.
The second is a trust owning a company: the trust holds 100% of the shares in an operating company, say “Smith Electrical Pty Ltd.” The trust doesn’t directly operate anything — it just holds shares. In this case, selling the business means either the company sells its assets (asset sale), or the trust sells its shares in the company (share sale).
The distinction matters because it changes who bears CGT, how the concessions apply, and what a buyer is actually acquiring. A buyer who acquires shares in a company inherits whatever’s inside it — including past liabilities — which is why some buyers push hard for asset sales. Your advisor should be across this well before you get to heads of agreement.
Who Actually Signs the Sale Contract
In a trading trust structure, the trustee signs the sale agreement — explicitly in its trustee capacity. The contract reads something like: “ABC Holdings Pty Ltd ACN 123 456 789 as trustee for the ABC Family Trust.” This is completely standard in Australian business sales, but it occasionally causes confusion when buyers’ solicitors (or buyers themselves) see the name on the contract doesn’t match the trading name on the business.
One thing that catches people out: the trustee needs authority under the trust deed to sell the business assets. Almost all modern deeds include this power, but older deeds — particularly those set up in the 1980s and 1990s — sometimes restrict what the trustee can do without beneficiary consent. Your solicitor should read the deed before the sale process starts, not during it.
If your business is held in a company under the trust, the trustee signs the share sale agreement as vendor of those shares. That’s a separate legal instrument and involves different tax considerations — covered in more detail in the asset sale vs share sale guide.
Capital Gains Tax: What Trusts Pay, and What They Can Avoid
A family trust is a flow-through entity for tax purposes — it calculates the capital gain but doesn’t pay tax on it directly. The trustee works out the gain, applies any available discounts, and then distributes the gain to beneficiaries. Each beneficiary includes their share of the gain in their own tax return.
The 50% CGT discount applies to capital gains made by trusts on assets held for more than 12 months. For most business sales, the business has been held for years, not months. A capital gain of $2 million, after the 50% discount, produces a taxable gain of $1 million — distributed across beneficiaries in whatever proportion the trustee decides.
That discretion over distribution is one of the structural advantages of a family trust: the trustee can direct the gain toward beneficiaries in lower tax brackets. A spouse earning little or an adult child still in university can receive a portion of the gain and pay tax at their marginal rate rather than the owner’s. This is legal, it’s been standard practice for decades, and it stops working in exactly the same way it always did when you sell. (The ATO is aware of this, by the way — they’re not asleep — but directing distributions to genuine beneficiaries for legitimate reasons is not a problem.)
The Small Business CGT Concessions: How They Work for Trusts
The bigger opportunity for most sellers isn’t the 50% discount — it’s the small business CGT concessions. These four concessions can reduce a capital gain to near zero for qualifying businesses, and family trusts can access them provided they meet the eligibility tests.
The basic eligibility: the trust must be a small business entity (aggregated turnover under $10 million) or meet the maximum net asset value test (net assets under $6 million, excluding the family home and superannuation). The asset being sold must be an “active asset” used in the business.
If you qualify, the four concessions are:
15-year exemption — If the trust has continuously owned the business for 15 or more years and the individual controlling the trust is 55 or older (or permanently incapacitated), the entire capital gain is exempt from tax. No discount, no reduction — exempt.
50% active asset reduction — Reduces the capital gain by 50%, applied after the CGT discount. So the combined reduction is 75% of the original gain.
Retirement exemption — Up to $500,000 of capital gain (lifetime limit) can be excluded if the amount is contributed to superannuation, or if the taxpayer is 55 or over.
Rollover — The gain can be deferred if the proceeds are reinvested in a qualifying replacement asset within two years.
A practical illustration: I worked with a Perth business owner selling her marketing services firm, which had been held in a discretionary trust for fourteen years. The sale price was $3.2 million; the capital gain after adjusting the cost base was $2.8 million. After the 50% CGT discount and the 50% active asset reduction, the taxable gain was $700,000, distributed between her and her spouse at their marginal rates. Effective tax rate on the total $2.8 million gain: under 12%. She’d modelled the concessions twelve months before she sold (which is more than most do before they start talking to buyers).
The concessions interact with each other in ways that require careful sequencing. An accountant who specialises in business exits — not just your regular tax accountant — should model your specific position before you set your asking price.
How Sale Proceeds Flow Through the Trust
Once settlement occurs and the trust receives the sale proceeds, that money sits in the trust. The trustee then distributes the proceeds — and the associated capital gain — to beneficiaries, who include them in their tax returns.
The critical constraint: any income not distributed by 30 June of the financial year in which it arises is taxed in the hands of the trustee at the top marginal rate, currently 47%. That’s not a theoretical risk — it’s a common and expensive mistake.
If a business settles on 15 May, the trustee has six weeks to decide who gets what and execute the formal distribution resolution. Many sellers assume the money can sit in the trust indefinitely while they figure out the tax. It can’t. Get your accountant’s involvement confirmed before settlement, not after.
Settlement Timing: A Decision Worth Thousands
The financial year in which the business settles determines when the capital gain must be distributed. A settlement on 25 June gives you five days. A settlement on 5 July gives you an entire year to plan distributions.
For larger transactions, pushing settlement into the new financial year can be worth negotiating — even at the cost of a small price adjustment or a brief delay. An extra month at settlement might be worth $50,000 to $200,000 in tax planning flexibility, depending on the size of your gain and the mix of beneficiaries.
This is one of the reasons starting a structured sale process early gives you options that a rushed sale doesn’t. When you’ve had time to run a proper process, you can negotiate settlement terms rather than simply accepting them. Planning your exit twelve months out puts you in a position to control the timing rather than react to it.
The Common Mistakes
A few things regularly go wrong when trust-owned businesses are sold.
Not checking the trust deed. Older deeds sometimes restrict asset sales or require beneficiary resolutions before a major transaction. Finding this out during due diligence — when a buyer’s solicitor asks for the deed — is not ideal.
Assuming the concessions apply automatically. The small business CGT concessions require active asset tests, minimum holding periods, and in some cases elections that must be lodged with the ATO. They don’t apply by default just because you’re a small business.
Missing the 30 June distribution deadline. This one hurts every year. If you settle in April or May, make sure your accountant is already booked and knows the timeline.
Not getting a valuation before you sell. If you’re going to access the retirement exemption, you need to know what the capital gain will actually be — which means knowing what the business is worth. A business valuation gives you a baseline figure to take to your accountant before you start the sale process, not after a buyer has already made an offer.
The trust structure itself is rarely the complication sellers expect it to be. The real complexity is in how CGT flows through the trust and whether you’ve set yourself up to access the concessions that can make the difference between a tax bill that stings and one that doesn’t. Get the tax advice early, read the trust deed before the process starts, and don’t let 30 June creep up on you.
If you’d like to talk through how a sale from a trust-owned business works in practice, get in touch with the team at Miro Capital.