How To Close A Discretionary Trust In Australia: Step-By-Step Guide

If you’ve been running your business through a discretionary (family) trust, there may come a point where keeping it open no longer makes sense.

Maybe you’re restructuring for investment, moving to a company model, simplifying your accounting, or you’ve sold the business assets and the trust has done its job. Whatever the reason, it’s important to approach the process carefully. Closing a trust is more than just “stopping” it - you need to follow the trust deed, deal with any remaining assets and liabilities, and properly document what’s been done.

This guide breaks down how to close a discretionary trust in Australia in a practical, small-business-friendly way, including the key steps, common traps, and what to prepare before you start.

Note: This article is general information only and isn’t legal or tax advice. Trust wind-ups can have significant tax consequences (including CGT and GST). You should speak with your accountant or a registered tax agent, and get legal advice on your trust deed and documentation.

What Does It Mean To Close A Discretionary Trust?

When business owners talk about “closing” a discretionary trust, they usually mean one of two things:

• Winding up the trust (ending it and distributing its assets), or
• Stopping activity (sometimes described as making the trust “dormant”, even though the trust still exists and can still have compliance obligations).

In most real-world situations, when people search for how to close a discretionary trust in Australia, they’re usually asking about winding up. That typically involves:

• confirming you have the legal power to wind up under the trust deed
• paying trust debts and finalising contracts
• distributing remaining trust property to beneficiaries (as permitted by the deed)
• preparing written trustee resolutions and records
• meeting final tax and reporting obligations (with help from your accountant/registered tax agent)
• closing bank accounts and cancelling registrations where relevant (ABN/GST, etc.)

It’s worth being clear on this early, because the “right” approach depends on why you’re closing the trust, what it still owns, and what obligations it still has.

Why Small Businesses Usually Close A Trust

Some common business-focused reasons include:

• Restructure for growth: you want to operate through a company for clearer ownership, easier investment, or simpler profit retention.
• Business sale completed: you sold the business assets and there’s nothing left to hold.
• Compliance overhead: annual accounting and trust distributions are no longer worth the effort.
• Banking or funding requirements: a lender prefers a different operating structure.
• Asset protection strategy has changed: the trust no longer fits your risk profile.

Whatever your driver is, your first step should always be the same: check what your trust deed actually allows you to do.

Step 1: Review The Trust Deed (This Is Where Most Issues Start)

The trust deed is the rulebook for your discretionary trust. Before you do anything else, you’ll want to confirm:

• Does the deed allow early termination? Some deeds allow the trust to be brought to an end early (for example, by “vesting” early), but the power and conditions vary.
• Who has the power to end the trust? This may sit with the trustee, or the trustee may need consent or involvement from an appointor/principal (or other parties named in the deed).
• What happens on vesting? The deed may set out specific rules for what must happen to trust property when the trust ends.
• Are there any required notices or procedures? Some deeds require formal written notices, specific resolution wording, or timeframes.
• Who are the beneficiaries? You can only distribute to beneficiaries permitted under the deed (including any classes of beneficiaries).

If you haven’t looked at your deed in years, you’re not alone. But it’s critical here, because winding up in a way that contradicts the deed can create disputes and legal and tax risk.

Check For The Vesting Date

Most trust deeds include a “vesting date” - the latest date the trust can run. Some trusts also allow the trustee to bring vesting forward. If the trust is near its vesting date anyway, your wind-up plan may look different than if it has decades left.

As a practical point: if the deed is unclear, or you suspect amendments have been made over time, it’s worth getting it reviewed so you’re not guessing on something that affects ownership and control of assets.

Step 2: Identify Everything The Trust Owns (And Everything It Owes)

Before you can distribute anything or close accounts, you need a clear picture of the trust’s position. This usually means preparing (or asking your accountant to prepare) a list of:

• Assets: cash, equipment, IP, shares in companies, loan accounts, investments, receivables, any business goodwill, or real property (if any)
• Liabilities: supplier bills, employee entitlements, taxes owing, loans, credit cards, lease obligations, and any pending disputes
• Contracts: customer agreements, supplier arrangements, licences, subscriptions, and any terms that continue after “business closure”

This step often reveals why a trust can’t simply be “shut down” overnight. For example, if the trust is still a party to a lease, has staff entitlements to pay, or has ongoing customer refund exposure, you’ll need to deal with those properly as part of the wind-up.

Be Careful With Related-Party Loans

Many small businesses have informal funding arrangements, like loans from founders, family members, or related entities sitting in the accounts. Even though a trust doesn’t have “directors”, it can still have related-party loan balances that need to be handled carefully on wind-up.

From a wind-up perspective, you’ll want to clearly document whether the trust owes money to someone, is owed money, and whether balances are being repaid, offset, assigned, or forgiven (and get tax advice before forgiving or writing off balances).

Step 3: Decide How You’re Actually Closing The Trust (Wind-Up Vs Restructure)

For many startups and small businesses, closing a discretionary trust happens as part of a restructure. Practically, you might be doing one of these:

• Full wind-up: distribute assets to beneficiaries and end the trust entirely (to the extent the deed allows).
• Move the business to a new structure: transfer business assets to a company (or another trust), then wind up.
• Stop trading: cease activity and keep the trust on foot (this can still involve ongoing costs, record-keeping, and sometimes lodgement requirements, depending on circumstances).

It’s worth being intentional about this, because “closing” can trigger tax outcomes depending on what assets are transferred, whether anything is sold, and how distributions are made. Your accountant or registered tax agent can help you map the tax side before you execute the steps.

If You’re Moving To A Company Structure

If your plan is to operate through a company going forward, you might also be setting up foundational documents at the same time, like a Company Constitution (especially if you’re bringing in co-founders or external investors).

Restructures also involve documenting who owns what and how decisions are made, which is where a shareholders agreement becomes important. Many founders put this in place when they move away from a trust model and into a company.

Don’t Ignore Security Interests Over Trust Assets

If the trust has ever borrowed money, leased equipment, or purchased goods on credit, there may be a security interest affecting trust assets (including security registered on the PPSR).

Before transferring or distributing assets, it’s sensible to check what security interests exist, whether consents are needed, and whether any releases are required as part of the wind-up. If this is relevant to you, a PPSR check can be part of your due diligence process.

Step 4: Prepare Trustee Resolutions And Wind-Up Documentation

This is the part that makes the closure real (and defensible later): you need the right written records showing the trustee exercised its powers properly and followed the deed.

At a high level, you’ll usually need:

• a trustee resolution to wind up / vest the trust in accordance with the deed
• a distribution resolution setting out who receives what trust property
• records of asset transfers (for example, sale agreements, assignment documents, or transfer forms)
• minutes and consents where required by the deed (or where a corporate trustee requires formal decision-making)

If your trustee is a company (a corporate trustee), it’s especially important to document decisions properly in line with the trustee company’s constitution and the Corporations Act requirements for company decision-making.

Distribution Decisions Need To Match The Deed

A discretionary trust usually gives the trustee discretion about which beneficiaries receive distributions. But that discretion still has boundaries.

For example:

• you generally can’t distribute to someone who isn’t a beneficiary under the deed
• the deed may include specific rules for what happens on vesting (including who takes if the trustee doesn’t validly exercise its discretion)
• if you distribute specific assets (not just cash), you should record exactly what is being transferred and at what value (and get tax advice on valuations and any CGT implications)

This is also where we often see issues when a business owner assumes they can simply “take” the assets back personally. Whether that’s possible (and how you do it) depends on the deed, the trustee’s powers, and the trust’s financial position.

Step 5: Finalise Tax, BAS, GST, And Reporting Obligations

Even though the trust is not a company, it can still have tax and reporting obligations while it operates - and often while it’s being wound up.

Your accountant or registered tax agent will usually help you confirm what needs to be lodged, but as a practical checklist for business owners, you’ll want to consider:

• trust tax return: whether a “final” return is appropriate and how distributions are reported
• BAS and GST: whether you need to lodge final BAS statements and cancel GST registration
• PAYG withholding: if you’ve employed staff, you may need finalisation steps and reporting
• capital gains tax (CGT): whether asset sales or transfers trigger CGT (this is fact-specific - get tax advice before transferring assets)

It’s common for the wind-up process to span across financial year timing, especially if you’re selling assets, collecting receivables, or settling liabilities.

Be Careful With “Last-Minute” Distributions

Trust distributions and the documentation around them can be time-sensitive and deed-specific.

If you’re winding up close to EOFY, plan early so you’re not trying to rush resolutions, consents, or valuations at the last minute (and check timing requirements with your accountant/registered tax agent).

Step 6: Close Accounts, Cancel Registrations, And Keep Records

Once assets have been distributed and obligations are finalised, the last practical steps are about “cleanly exiting” and leaving a clear paper trail.

Close Bank Accounts And Business Accounts

Make sure you:

• close trust bank accounts once the balance is zero
• cancel business credit cards held in the trustee’s name for trust purposes
• finalise accounting subscriptions and record-keeping access (but keep copies of records)

Cancel ABN / GST Where Appropriate

If the trust has an ABN and is no longer carrying on an enterprise, you may be able to cancel the ABN and GST registration (if applicable). This is often done after the final BAS/tax reporting steps are complete.

Keep Your Records (Even After The Trust Is Closed)

Even when the trust is wound up, you should keep:

• the trust deed and any deed variations
• all trustee resolutions and minutes
• financial statements and tax returns
• evidence of asset transfers and distributions
• correspondence relating to closure (for example, bank closure confirmation)

In a startup environment, this is especially important if you’re moving into a company structure, raising funds later, or selling the business. Investors and buyers often want to see a clean history of ownership and asset transfers.

Key Takeaways

• Knowing how to close a discretionary trust in Australia starts with your trust deed - it determines whether you can wind up early, who has power to do it, and how assets must be dealt with on termination.
• Before you wind up, list everything the trust owns and owes, including contracts, related-party loans, and any security interests over assets.
• Closing a trust often overlaps with a business restructure (like moving to a company), so it’s important to document transfers and decisions clearly.
• Trustee resolutions and written records matter - they show the trustee acted properly and help protect you if questions come up later.
• Don’t forget final tax and reporting steps (trust tax return, BAS/GST, PAYG withholding), which can continue during the wind-up period - get advice from your accountant/registered tax agent.
• After closure, keep complete records of the wind-up, asset distributions, and any transfers to support future due diligence, financing, or a business sale.

If you’d like help closing or restructuring your discretionary trust, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.