By Riad Tayeh & Caryl Dias
When Asset Protection Meets Payroll Tax Grouping
Business owners use trusts for good reasons: asset protection, succession planning, wealth preservation and flexibility.
But there is a catch.
Under the NSW payroll tax grouping rules, a trust that appears legally separate from your operating businesses may still be treated as connected to them.
The problem: potential beneficiaries can equal “control”
Section 72 of the Payroll Tax Act 2007 (NSW) allows businesses to be grouped where there is sufficient common ownership or control.
For companies, that concept is relatively straightforward.
For discretionary trusts, it is much broader.
Under section 72(6), a person who may benefit from a discretionary trust can be treated as having a controlling interest in it.
They do not need to have received a distribution.
They may never receive one.
Simply being within the class of potential beneficiaries can be enough.
Why should business owners care?
Consider a common structure:
- an operating company carrying on the business;
- a family trust holding investments; and
- separate entities for other ventures.
The intention is sensible: keep business risk away from family wealth.
But payroll tax legislation can look across those structures.
If the same individuals control businesses and are potential beneficiaries of a discretionary trust, Revenue NSW may treat those entities as part of the same payroll tax group.
That can mean:
One payroll tax threshold. Greater exposure. Potential joint and several liability.
The trust does not suddenly disappear, nor are its assets automatically available to business creditors.
But the tax legislation may not respect the separation in the way the business owner expected.
Anti-avoidance — or too broad?
There is a clear policy reason for grouping rules.
Without them, businesses could divide operations across multiple entities simply to access multiple payroll tax thresholds.
But section 72(6) goes further.
It can treat someone as controlling a trust because they might benefit from it, even though they do not own the assets, cannot demand them and may never receive them.
That creates an important disconnect between traditional concepts of ownership and the way payroll tax law treats control.
The key takeaway
Trusts remain valuable.
But legal separation does not always mean tax separation.
Business owners with discretionary trusts should understand:
- who sits within the beneficiary class;
- how those individuals are connected with other businesses;
- whether the trust deed allows beneficiaries to be excluded; and
- whether degrouping under section 79 may be available.
A structure designed years ago for asset protection may have payroll tax consequences that were never anticipated.
A trust can still be trusted — but not blindly.
Disclaimer: This newsletter is general commentary only and is not legal or tax advice. Specific advice should be obtained for your circumstances.
