How to Handle Crypto Tax in a Family Trust Structure

Family trusts (discretionary trusts) are a widely used structure in Australia for holding investments, including cryptocurrency. They offer flexibility in distributing income and capital gains among beneficiaries, which can produce meaningful tax savings by directing distributions to lower-income family members. However, the interaction between trust law, Australian crypto tax rules, and the ATO’s compliance framework creates specific obligations that trustees and beneficiaries must understand and manage carefully.

The ATO does not treat family trusts as tax-exempt vehicles or as entities that provide any inherent shelter from crypto tax. Trust income and capital gains derived from cryptocurrency are fully subject to capital gains tax and income tax rules, with the specific liability flowing through to beneficiaries based on the trustee’s distribution decisions. Getting trust crypto tax wrong, whether through incorrect cost base calculations, improper distribution resolutions, or failure to disclose trust distributions, is an area of active ATO compliance activity.

 

How a Family Trust Holds Crypto Assets

When a family trust holds cryptocurrency, the trustee holds the legal title to the digital assets on behalf of the trust. The trust’s crypto holdings sit on exchanges or in wallets that are controlled by the trustee, typically in the trust’s name or under the trustee entity’s control. The cost base of crypto assets held by the trust is calculated at the trust level: the date and AUD amount paid on acquisition by the trustee establishes the cost base for each parcel of crypto.

The trust should have its own record-keeping system for its crypto holdings, separate from any crypto held personally by the trustee or other family members. Mixing trust crypto with personal crypto in the same exchange account or wallet creates significant accounting and legal problems: the assets are legally and beneficially distinct, and their records must be maintained separately. Each exchange account and wallet address used to hold trust crypto should be clearly identified as belonging to the trust.

For trusts holding crypto on centralised exchanges, the exchange account should ideally be registered in the trustee’s name as trustee for the trust (e.g., “John Smith as Trustee for the Smith Family Trust”). Australian exchanges have become more familiar with trust account structures and generally accommodate this. On-chain wallets holding trust crypto should be documented in the trust’s records as trust assets, even though the blockchain records only show a wallet address without owner identification.

 

Capital Gains Tax at the Trust Level

When the trust disposes of a crypto asset, the capital gain or loss is calculated at the trust level using the same rules that apply to individual investors. The 50 per cent CGT discount applies to assets held by the trust for more than 12 months before disposal, provided the trust is not a company (companies are not eligible for the CGT discount). Discretionary trusts are eligible for the CGT discount, making 12-month holding periods as valuable in a trust structure as for individual investors.

The trust-level capital gain is then available for distribution to beneficiaries through the year’s distribution resolution. Unlike ordinary income, capital gains retain their character when distributed from a trust to individual beneficiaries: a discounted capital gain distributed to a beneficiary is taxed in the beneficiary’s hands as a discounted capital gain (i.e., at 50 per cent of the gain, taxed at the beneficiary’s marginal rate). This character flow-through is one of the most valuable features of the family trust structure for crypto investors.

Capital losses at the trust level cannot be distributed to beneficiaries. They are quarantined within the trust and can only be offset against capital gains made by the trust in the same or future years. A trust that realises significant crypto capital losses in one year must carry those losses forward to offset future trust capital gains: there is no mechanism to pass the loss to beneficiaries. This asymmetry between capital gains (distributable) and capital losses (not distributable) is an important limitation of the trust structure for crypto investing.

 

Distributing Crypto Income Through the Trust

Crypto income received by the trust (from staking rewards, yield farming returns, or airdrops that constitute income) is trust income in the year of receipt. The trustee determines through the annual distribution resolution which beneficiaries receive which portions of the trust income. The flexibility to direct income to lower-income beneficiaries (children over 18, a spouse with lower income, or parents) is the primary tax planning tool available through the family trust structure.

Trust distributions are not simple transfers of funds: they are legal allocations of the trust’s net income (and capital gains, if resolved) to specific beneficiaries. Trustees must make valid distribution resolutions before 30 June each year (or the date specified in the trust deed) to determine how income and gains for the year are allocated. Failure to make a valid distribution resolution results in the income and gains being taxed in the trustee’s hands at the highest marginal rate (45 per cent), negating any tax planning benefit.

For tax advice on the distribution resolution, including how much income to direct to each beneficiary to optimise the family’s overall tax position, engagement with a registered tax agent who understands both trust law and Australian crypto tax rules is essential. The interaction between trust distributions and individual beneficiaries’ other income, Medicare levy, and tax offsets requires careful calculation to achieve the intended result.

 

ATO Compliance Focus on Trust Distributions

The ATO actively monitors trust distributions for “tax avoidance” arrangements, particularly where distributions are made to low-income beneficiaries (including minor children, adult children with no income, or beneficiaries who appear to receive distributions without genuine economic benefit) in patterns that suggest the distributions are designed primarily to reduce tax rather than genuinely share the economic benefit of the trust’s activities.

Section 100A of the Income Tax Assessment Act 1936 is a key provision the ATO uses to challenge trust distributions that do not represent genuine economic entitlements. Under Section 100A, if a beneficiary is made presently entitled to trust income but there is an agreement that the benefit of that entitlement will flow to another person (typically the trustee or a higher-income family member), the distribution can be disregarded and the income taxed to the trustee. The ATO’s Section 100A guidance and compliance approach has become increasingly active since 2022.

For trust structures holding crypto, the practical implication is that distribution resolutions should reflect genuine decisions about how the trust’s wealth is being shared among family members, not just which beneficiary happens to have the lowest marginal rate that year. Documentary evidence that distributions reflect genuine decisions (trustee minutes, distribution deeds, actual payment of distributed funds to beneficiaries) provides protection against Section 100A challenges. The legal risks of crypto investing in a trust structure include both crypto tax errors and trust law compliance failures.

 

Record-Keeping Requirements for Trust Crypto

The ATO’s record-keeping requirements apply to trust crypto holdings in the same way they apply to individual holdings. The trust must maintain records of every acquisition and disposal of crypto assets, including the date, AUD amount, quantity, and associated costs. These records must be kept for at least five years from the date of lodgement of the relevant trust tax return.

In addition to transaction records, the trust should maintain: trust deed and any amendments, distribution resolutions for each year showing how income and capital gains were allocated to beneficiaries, financial statements for the trust showing the crypto asset valuations and movements, and any professional advice documents relating to the trust’s crypto investments or tax treatment.

The trust must lodge a trust tax return annually with the ATO, disclosing all trust income, capital gains, and the allocation of those amounts to beneficiaries. Each beneficiary must then include their distribution in their own individual tax return. The ATO reporting requirements for trusts holding crypto are therefore multi-level: the trust itself reports its activity, and each beneficiary reports their received distributions.

This article is for educational purposes only and does not constitute financial or tax advice. Australian crypto tax laws are complex and subject to change. Always consult a registered tax agent or accountant for advice tailored to your specific circumstances.