Under Australian law, a salary cannot be paid directly into a family trust. Employment income must be received by the individual employee and taxed as personal income under PAYG rules. A family trust can only receive income that arises from business operations, investments, or post-tax transfers.
However, once salary has been lawfully paid and taxed, individuals may transfer it into a family trust for purposes such as asset protection, investment management, or estate planning. Those uncertain about the legal process can explore finding a good family lawyer to obtain tailored advice and ensure compliance with Australian taxation and trust law.
The key legal distinction lies in the source of income — wages earned through employment belong to the individual, not the trust.
Under Australian law, salary and trust income are legally distinct.
A salary is classified as personal income earned by an individual through employment under an employment contract. It represents payment for personal labour or services and is governed by the Fair Work Act 2009 (Cth) and PAYG tax obligations. The employee, as the legal earner, must receive this income directly, and it cannot be diverted to another entity such as a family trust.
By contrast, trust income refers to earnings generated by assets or business activities held within a trust — for example, rental income, dividends, or business profits. This income is received by the trustee on behalf of beneficiaries and distributed according to the trust deed and the Income Tax Assessment Act 1936 (Cth).
In simple terms, salary belongs to the person who earns it, while trust income belongs to the trust that generates it. This distinction forms the legal foundation for why wages cannot be paid directly into a family trust in Australia.
In most circumstances, no — it is not lawful for an employer to pay a salary directly into a family trust account. The legal recipient of employment income is the person performing the work, not the trust or its trustee.
However, once received and taxed appropriately, that income may be transferred into a trust for legitimate purposes, such as investment, asset protection, or intergenerational wealth planning.
The only exception occurs where a trust is the genuine contracting entity. For example, if an individual provides professional services through a company acting as trustee for a family trust, and the company invoices clients directly, then income earned from that business activity can flow into the trust.
For PAYG employees, however, such redirection is not permitted, as the ATO considers employment income to be personally assessable.
If an individual attempts to have their salary paid into a family trust, the Australian Taxation Office (ATO) is likely to treat the income as personal assessable income, regardless of where it is deposited.
This is grounded in the assignment of income principle, which prohibits a taxpayer from diverting income they have personally earned. The ATO may also apply Part IVA (the general anti-avoidance rule) of the Income Tax Assessment Act 1936 (Cth) if the arrangement appears intended to reduce tax liability.
Key tax outcomes include:
Where the goal is to distribute income lawfully through a family trust, it must be established and operated as a business or investment structure, not an employment arrangement.
The process typically involves:
Once established, the trust can receive business income or investment returns, but not personal wages.
Assigning salary to a trust without a legitimate business basis can expose both the individual and trustee to legal and financial consequences, including:
Lawyers specialising in trust and tax law consistently warn that misdirecting salary into a trust is not a compliant strategy. Instead, trust structures should focus on managing income generated from business or investment activities.
A family trust can legally receive income only when that income is generated by the trust itself through business, investment, or asset ownership — not through an individual’s employment.
For example, if a consultant or contractor operates through a company acting as trustee for a family trust, and that company invoices clients for services, the resulting business income belongs to the trust. This is because the trust, through its trustee, is the legal entity carrying on the business activity and earning the income.
However, if an individual is an employee receiving a salary under an employment contract, that income cannot be paid into the trust directly. The law treats it as personal income belonging to the employee, even if they later transfer it to the trust after tax.
In short, a family trust may receive business or investment income, but not wages or salaries earned personally. The determining factor is whether the trust, through its trustee, is the entity lawfully providing the services or holding the assets that generate the income.
Both family trusts and SMSFs are recognised structures for wealth management, but their legal functions differ:
Therefore, while a trust offers flexibility for investment income, superannuation remains the lawful mechanism for redirecting employment-related income.
Although salary cannot be paid directly into a family trust, individuals may still use trusts as part of legitimate wealth management by:
These approaches ensure compliance while maintaining the legal benefits of a family trust structure.
Before implementing any structure involving salary and trusts, individuals should seek legal and accounting advice. The following clarifies key legal questions:
No. Employment income must be paid directly to the employee. Redirecting it to a trust breaches both PAYG and employment law obligations.
Yes — but only after paying personal income tax. Transferring post-tax income into a trust for investment or estate planning purposes is permissible.
The ATO will treat any assigned salary as personal income under the assignment of income doctrine, potentially invoking anti-avoidance provisions.
Yes. If a trust operates a business and invoices for services, that income belongs to the trust. The structure must reflect genuine business activity.
The arrangement can trigger ATO investigation, tax penalties, or reclassification of income, and may also breach fiduciary duties or employment contracts.
A family trust distributes profits from investments or business operations. An SMSF manages retirement savings and can receive employer contributions lawfully.
Under Australian law, a salary cannot be paid directly into a family trust, as employment income is personal in nature. Trusts, however, remain valuable for managing business profits, investments, and family assets within a compliant framework.
For tailored legal guidance on structuring income and trusts, contact LegalFinda — Australia’s trusted platform connecting individuals with expert family and tax lawyers who ensure compliance with the Income Tax Assessment Acts and ATO guidelines.