- Unit trust = fixed proportional distributions
- Discretionary trust = trustee flexibility each year
- Discretionary trusts face an announced 30% minimum tax from 2028, unit trusts do not
Choosing between a unit trust and a discretionary trust comes down to one thing: control over who gets the income.
A unit trust splits income in fixed proportions based on the units each beneficiary holds, which suits unrelated parties investing together. A discretionary (family) trust lets the trustee decide each year who receives what, which suits a family managing its own tax position. Sleek sets up the right structure and handles the ongoing accounting so you get the fit right from day one.
Unit trust vs discretionary trust: which should you use?
As a general rule, choose a unit trust when unrelated parties want fixed ownership and predictable income distributions. Choose a discretionary trust when a family wants flexibility to decide who receives trust income each year.
Neither is universally better. The right pick depends on who is involved, what you are holding, and how you want distributions handled. A quick word of honesty first: trusts add setup cost, annual accounting, and compliance obligations, so they are not the right structure for everyone.
|
If you… |
Choose… |
|
Have unrelated investors |
Unit trust |
|
Want flexible family distributions |
Discretionary trust |
|
Need fixed ownership interests |
Unit trust |
|
Want annual distribution flexibility |
Discretionary trust |
How does a unit trust work?
A unit trust divides the beneficial interest into fixed units, much like shares in a company. Each unitholder’s entitlement to income and capital is set by how many units they hold, so a 40% unitholder receives 40% of distributions.
This fixed structure makes unit trusts the natural fit when unrelated people pool money, because everyone knows exactly what they are entitled to and units can be bought or sold. It is a common structure for property co-investment and joint ventures.
See our property capital gains tax guide for more on holding investment property through different ownership structures.
How does a discretionary (family) trust work?
A discretionary trust gives the trustee the power to decide, each year, which beneficiaries from an eligible class receive income or capital, and in what amounts. No beneficiary has a fixed entitlement until the trustee resolves to distribute.
That flexibility is the whole point: a family can direct income to members on lower marginal rates in a given year. The trade-off is that this flexibility draws ATO attention, and distributions must be genuine, resolved on time, and properly documented. Our discretionary trust page covers Sleek’s setup service.
Unit vs discretionary trust: the full comparison
The table below sets out how the two structures differ across the factors that usually decide the choice:
|
Factor |
Unit trust |
Discretionary (family) trust |
|
Control of distributions |
Fixed by units held |
Trustee decides each year |
|
Distribution flexibility |
Low, proportional to units |
High, within the beneficiary class |
|
Income tax |
Flows to unitholders at their marginal rates |
Flows to chosen beneficiaries at their marginal rates |
|
Asset protection |
Depends on unit ownership; generally offers less asset protection than a discretionary trust because units are assets owned by investors |
Generally stronger, no fixed entitlement to attack |
|
Typical use |
Unrelated co-investors, property syndicates, joint ventures |
Family businesses and investments, income splitting |
|
Adding/removing parties |
Transfer units (may trigger CGT/duty) |
Trustee discretion within the deed |
Which trust suits property co-investment, family, or business?
Match the structure to who is involved and what you want from it. In most cases the choice resolves cleanly:
- Property co-investment with unrelated parties: a unit trust, because fixed units give everyone a clear, tradeable share and avoid disputes over who gets what.
- A family managing its own income and assets: a discretionary trust, for the flexibility to distribute to family members each year and for stronger asset protection.
- A family business planning for growth or succession: usually a discretionary trust, often paired with a corporate beneficiary where appropriate to provide additional tax-planning flexibility.
- A mix of both needs: sometimes a hybrid or a unit trust with a discretionary trust as unitholder, which is where advice matters most.
How are trust distributions taxed?
Both trust types are flow-through structures: the trust itself generally pays no tax, and the net income is taxed to the beneficiaries who are presently entitled to it, at each beneficiary’s own marginal rate. The differences are in who can be a beneficiary and the anti-avoidance rules that apply.
- Undistributed income: if the trustee does not validly distribute by year end, the trustee can be taxed at the top marginal rate of 47%.
- Section 100A: for discretionary trusts, distributions to a low-rate beneficiary where someone else gets the benefit can be ignored and taxed to the trustee at 47%.
- Family trust distribution tax: if a family trust election is in place, distributions outside the family group are taxed at 47%.
- Coming change: a 30% minimum tax on discretionary trusts has been announced from 1 July 2028 (not yet law). It would apply at the trustee level and does not apply to unit or other fixed trusts, a genuine point of difference to watch.
Capital gains and their CGT treatment can also stream through to beneficiaries.
TIPIf flexibility is your main reason for choosing a discretionary trust, factor in the announced 30% minimum tax on discretionary trusts from 1 July 2028. It would not affect a unit trust, so the long-term tax picture, not just this year’s, should inform the choice.
How Sleek helps with unit and discretionary trusts
There is no one-size-fits-all trust structure. A unit trust offers certainty and suits unrelated investors who want fixed ownership, while a discretionary trust gives families greater flexibility over income distributions in exchange for additional compliance. Because the decision affects tax, control and asset protection for years to come, it’s worth getting professional advice before setting up a trust.
Choosing the wrong trust structure can create unnecessary tax, compliance and restructuring costs later.
Sleek helps you choose the right structure, establish the trust correctly, and manage the ongoing accounting, annual distribution resolutions and compliance requirements. That matters most for discretionary trusts, where timing and documentation are everything.
Choose the right trust with confidence. Sleek helps you pick the structure, set it up correctly, and manage the annual distribution resolutions and compliance.
450,000
businesses worldwide.
from 4,100+ reviews.
Frequently Asked Questions
What is the main difference between a unit trust and a discretionary trust?
Control over distributions. A unit trust splits income and capital in fixed proportions based on the units each beneficiary holds, like shares in a company. A discretionary trust lets the trustee decide each year which beneficiaries in an eligible class receive income and how much. Fixed versus flexible entitlement is the core distinction.
Is a family trust the same as a discretionary trust?
In Australia, family trust usually means a discretionary trust that has made a family trust election with the ATO. All family trusts are discretionary trusts, but not every discretionary trust makes the election. The election gives access to certain franking-credit and loss concessions, but limits distributions to the family group or family trust distribution tax at 47% applies.
Which trust is better for property investment?
It depends on who is investing. For unrelated parties pooling money into property, a unit trust is usually better because fixed units give each investor a clear, tradeable share. For a family holding investment property, a discretionary trust offers distribution flexibility and stronger asset protection. Co-investors generally want a unit trust; a single family generally wants a discretionary trust.
How is trust income taxed in Australia?
Both unit and discretionary trusts are flow-through structures, so the trust generally pays no tax itself. The net income is taxed to the beneficiaries who are presently entitled to it, at their own marginal rates. If the trustee fails to validly distribute by year end, the trustee can be taxed on that income at the top marginal rate of 47%.
Can I change beneficiaries in a unit trust?
Not freely. In a unit trust, entitlements are fixed to units, so changing who benefits means transferring or issuing units, which can trigger capital gains tax and stamp duty. A discretionary trust is far more flexible, as the trustee can vary distributions among the beneficiary class each year without transferring any fixed interest.
Are trusts worth the cost for a small business?
Not always. Trusts bring real setup cost, annual accounting, and compliance obligations such as timely distribution resolutions, so they suit businesses and families with genuine income-splitting, asset-protection, or co-investment needs. For a simple sole operator, the added complexity may outweigh the benefit. It is worth modelling the cost against the benefit with an accountant first.
