Australia's most versatile family wealth vehicle. Absolute trustee discretion over income and capital distributions — giving your clients the asset protection, tax flexibility, and succession planning they need.
A discretionary trust is established when a creator — known as the Settlor — gifts a Settlement Sum to the Trustee to hold for the benefit of the Beneficiaries. The Trustee holds all trust property (the Trust Fund) and administers it in accordance with the Deed of Trust, with the power to distribute income and capital entirely at its absolute discretion.
The popularity of the MGS Discretionary Trust is largely due to its asset protection and family succession qualities. It also provides a wide range of taxation benefits — including income splitting, income streaming, and the ability to direct capital gains to beneficiaries who can use concessions most effectively.
Unlike a unit trust, no beneficiary has a vested interest in the Trust Fund. The Trustee determines each year who receives income and capital, and in what proportions — delivering unparalleled flexibility across the life of the trust.
Each party to an MGS Discretionary Trust plays a distinct and important role in its establishment, administration and control.
Establishes the trust by paying the Settlement Sum to the Trustee. The Settlor must not be a beneficiary — to avoid adverse tax consequences, the Settlor is typically an unrelated person (e.g. a staff member or family friend) who takes no further role in the trust's affairs.
Holds legal title to the Trust Fund and exercises all discretions under the Deed. Typically a $2 corporate trustee (with the family as directors and shareholders), which limits personal liability. The Trustee owes fiduciary duties to all beneficiaries and must maintain proper records and accounts.
Holds the most powerful role in the trust — the power to remove and replace the Trustee at any time by written notice. The Appointor exercises effective control over the trust and the Trust Fund is therefore accountable in Family Law Act property settlement matters. More than one Appointor may act jointly.
The central person around whom the beneficiary class is defined. The spouse, children, parents, grandparents and other relatives of the Primary Beneficiary are automatically included as beneficiaries. The Primary Beneficiary is also the default recipient of undistributed income and capital. May serve as the "test individual" for a Family Trust Election.
Where named, the Controller provides consent for key trustee actions — such as appointing additional beneficiaries, varying the deed, and determining an earlier Vesting Date. Where the role is vacant, the trustee acts without this constraint. The Family Court is likely to find that a Controller has control of the trust for property settlement purposes.
The persons and entities eligible to receive distributions. No beneficiary has a vested interest in the Trust Fund — their interest is a chose in action entitling them to the due administration of the trust. The Trustee retains absolute discretion to include or exclude any beneficiary in any given year's distribution.
The Deed of Trust gives the Trustee a range of alternatives in dealing with the net trust income earned in each financial year. Critically, a distribution resolution must be made on or before 30 June each year. The resolution may record a distribution in proportions before the exact income figure is known.
The Trustee distributes all or part of the net trust income to one or more beneficiaries in any proportion. Income received by adult beneficiaries is taxable in their hands at their marginal rate. A distribution of $10,000 to a beneficiary with $40,000 of other income produces $50,000 of assessable income for that year.
The Trustee may elect not to distribute any income, accumulating it as an addition to the Trust Fund. The Trustee then pays tax at the highest marginal rate on the accumulated income. When accumulated income is distributed on the Vesting Day, it forms part of capital and is not taxable in the beneficiaries' hands.
The Trustee may distribute part of the net income to selected beneficiaries (taxed in their hands at marginal rates) and retain the balance as accumulated capital (taxed to the Trustee at the highest rate). This split approach is commonly used to manage year-by-year tax outcomes.
Where income is distributed to a beneficiary under 18, special (higher) tax rates apply above the $416 threshold. Distributions to minors are held on separate sub-trust by the Trustee until the minor turns 18. The Trustee may apply these funds for the minor's maintenance, education and benefit in the meantime.
Trust income retains its character when distributed. If a trust derives interest, trading income and capital gains, each beneficiary's distribution carries a proportion of each. Strategic streaming directs different income types to the beneficiaries best placed to receive them.
Under the Tax Laws Amendment (2011 Measures No. 5) Act 2011, where a trust has a net capital gain, beneficiaries can be made specifically entitled to that capital gain — causing it to be attributed to that beneficiary alone rather than spread proportionately. This enables precise direction of the 50% CGT discount to beneficiaries on lower marginal rates or who have capital losses available.
Similarly, franked distributions and franking credits can be streamed to beneficiaries who can make best use of the imputation credits — whether individual shareholders, corporate beneficiaries, or superannuation funds.
| Income Type | Optimal Streaming Strategy |
|---|---|
| CGT discount amounts | Beneficiaries on low marginal rates, or those with available capital losses to apply against the gain |
| Capital gains from collectibles | Beneficiaries with collectible capital losses available to apply against collectible gains |
| Franked dividends & franking credits | Beneficiaries who can best use the imputation credits — including corporate beneficiaries and SMSFs |
| Interest, royalties & unfranked dividends | Non-resident beneficiaries to apply lower withholding tax rates |
| Trading income & dividends | Beneficiaries on low marginal rates or with carry-forward income losses |
| Foreign source income | Non-resident beneficiaries — no Australian tax payable on foreign source income |
| Indexation amounts | Beneficiaries best placed to receive tax-preferred amounts as indexation concessions are re-introduced |
Specific entitlement resolutions must correctly identify the beneficiary and the capital gain component to be valid. Always obtain specific tax advice before streaming. Consider whether an MGS Capital Pool Unit Trust better serves your client's needs for separating tax-preferred amounts.
Because no beneficiary holds a vested interest in the Trust Fund, trust assets are generally protected from the personal creditors of individual beneficiaries. A beneficiary's interest is merely a chose in action — a right to compel proper administration of the trust — not a proprietary interest in specific assets.
This protection is a key reason discretionary trusts are used to hold investment properties, business assets, shares and other wealth-generating assets on behalf of families exposed to commercial risk.
Most State and Territory land tax statutes impose non-concessional surcharge rates on land held in trusts that are not "fixed." A discretionary trust, by its nature, cannot satisfy the fixed trust definition — beneficiary interests are not vested and indefeasible.
This means discretionary trusts holding NSW, Victorian, Queensland or other State land may attract surcharge land tax. The precise implications vary by jurisdiction and require specific State tax advice.
Stamp duty also arises on establishment and on any subsequent transfer of property to the trust. The amount of the Settlement Sum and any property transfers should be considered carefully in light of applicable duty.
The MGS Discretionary Trust is the most widely used family wealth structure in Australia. It suits virtually any client with multiple family members, investment assets, or a need for tax flexibility and succession planning.
Hold investment properties in trust and split rental income and capital gains each year across the family group to minimise overall tax. Stream CGT discount amounts to the lowest-rate beneficiary on each disposal.
Operate business activities through a corporate trustee with the ability to split profits across family beneficiaries each year — reducing the combined family tax burden and retaining flexibility as business income fluctuates.
Where family members have significantly different marginal tax rates — a working spouse, a retired parent, adult children studying — the discretionary trust enables optimal annual income allocation to minimise total family tax.
Hold listed shares and managed funds in trust to stream franking credits to those who can use them, direct capital gains to beneficiaries with losses, and split dividend income across the family each year.
Professionals, business owners and others exposed to commercial liability can hold family wealth in trust — with the trustee, not the individual, as the legal owner — providing a structural barrier against personal creditor claims.
Provide for the transfer of family wealth across generations with the flexibility and protections that a Will cannot offer — including control over timing, the ability to exclude problem beneficiaries, and management of blended family dynamics.
Common questions about the MGS Discretionary Trust. Contact our team for matters specific to your client's circumstances.
Create your MGS account or log in at macquariegs.com.au. Registration is free and takes under two minutes.
Provide the Settlor, Trustee, Appointor, Controller (if any) and Primary Beneficiary details. Our form guides you through each field required to establish the trust.
Our team prepares a bespoke MGS Discretionary Trust deed to your specifications. Standard turnaround is 1–2 business days.
The deed is delivered ready for execution by the Settlor and Trustee. Our explanatory memorandum covers establishment, stamp duty requirements, and annual administration obligations — including the 30 June resolution deadline.
Questions? Call us on (02) 9231 5111
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