The decision to change from a trust to a company depends on your business’s unique circumstances. But with the 2026 Budget introducing a 30% minimum tax on discretionary trusts, it’s worth reviewing if your current structure still meets your needs.
At Australian Business Magazine, we’ve spent years breaking down Australian tax and business structure topics into clear, practical advice. That way, you can make informed business decisions without getting confused by legal jargon.
In this guide, we’ll explain why business owners are leaving trusts behind and how the 2026 Budget changes the maths. You’ll also learn about trust rollover relief and the hidden costs most people overlook.
Keep reading to find out which path suits your business.
Does It Make Sense to Restructure a Trust as a Company?
A trust-to-company restructure makes sense if your business retains serious profits, faces the Australian Taxation Office’s (ATO) scrutiny on distributions, or needs outside investment. However, it’s not the right move for every business structure. Your business’s income and long-term goals all influence the right choice.
Here are five situations that typically determine the answer for Australian business owners:
- High Retained Earnings: If your trust is sitting on profits you don’t need to draw personally, a company may be a better option. That’s because it lets you retain that income at a flat 25% company tax rate instead of distributing it at individual marginal tax rates.
- Profits Over $200,000 Annually: At this income level, a company may offer tax advantages if you don’t need immediate access to your profits. Under the proposed 2026 Budget changes, eligible companies would continue paying a 25% tax on retained profits.
- ATO Scrutiny on Distributions: The ATO’s focus on Section 100A reimbursement agreements hasn’t slowed down since the ATO finalised PCG 2022/2. So if your trust distributes income to low-tax beneficiaries who don’t receive the actual benefit, you’re in the ATO’s crosshairs.
- Outside Investment Plans: Venture capital firms and private equity investors won’t put money into a discretionary trust. They need a shareholding structure with clear ownership, voting rights, and exit mechanisms.
- Low-Income Trusts: Small business owners earning under $100,000 a year rarely gain enough from a company restructure to justify the cost. Most of that income gets drawn for personal use anyway, so the lower corporate rate doesn’t deliver any savings.
If most of these situations sound familiar, you should consider restructuring as an option with your accountant. But if only one or two situations apply, you might get better results by keeping the trust and adding a corporate beneficiary instead.
Why Are Business Owners Moving Away From Trusts?
Business owners are moving away from trusts because of rising tax compliance burdens, Division 7A complications, and limited access to capital. These issues have been building for years, and the 2026 Budget has only sped up the change toward corporate structures.
Specifically, four common reasons lead Australian business owners to consider switching from a trust to a company.
Lower Flat Tax Rate on Retained Profits
As mentioned earlier, eligible base rate entities pay 25% company tax if they meet the ATO’s turnover and passive income tests. In comparison, trust income is generally taxed in the hands of beneficiaries at their individual marginal tax rates, which can be much higher for top-income earners.
The main benefit applies if you don’t need to withdraw all profits immediately. In that case, a company can retain earnings and pay tax at the 25% rate year after year. You’re not required to distribute all profits, and there’s generally no additional personal tax until dividends are paid.
Better Asset Protection and Limited Liability
A single lawsuit against an individual trustee can put your personal home at risk. That’s the reality for a lot of trust structures where a natural person acts as trustee. Under these circumstances, creditors can pursue the trustee’s personal assets to recover trust debts.
A company, on the other hand, separates your personal wealth from the business. Directors aren’t personally liable for most commercial debts (unless they’ve signed personal guarantees).
Even using a corporate trustee helps, but it still adds compliance layers and doesn’t solve the tax burdens that come with a trust.
Division 7A and Unpaid Present Entitlements
Trust distributions to a company beneficiary create unpaid present entitlements that trigger Division 7A loan rules. The trust either needs to pay the cash across or put a compliant loan agreement in place at the ATO’s benchmark interest rate.
For many business owners, that cash is already tied up in working capital or active assets. Instead, a company can retain profits without creating a separate loan obligation.
Easier Access to Investors and Government Licences
A corporate structure gives you direct access to equity investors, venture capital, and government licensing programs. The thing is, most VC firms don’t invest in a discretionary trust. They need shares they can buy, hold, and sell with clearly defined ownership rights.
Government bodies have also shifted their preference toward companies when issuing licences and contracts. What’s more, operating through a company will let you form a tax consolidated group. It’ll simplify lodgement by allowing a single income tax return across the whole group.
Pro Tip: Investors may ask for a legal review of past restructurings, so keep records showing the commercial reasons behind any changes.
The Impact of the 2026 Budget on the Decision
The 2026 Budget introduced a proposed 30% minimum tax on discretionary trusts from 1 July 2028, with a three-year rollover relief window starting in July 2027. This measure isn’t law yet, but the government has signalled it will proceed. It fundamentally changes the maths behind every trust-vs-company decision in Australia.
Let’s take a closer look at how these changes will affect your restructuring timing.
The 30% Minimum Tax From July 2028
Under the proposed 2026 Budget changes, trustees of discretionary trusts will pay a minimum 30% tax on the trust’s taxable income from the 2028-29 income year. The aim is to bring the tax treatment of discretionary trust income closer to that of wage and salary earners. It’ll improve the fairness and sustainability of the tax system.
Meanwhile, non-corporate beneficiaries will receive a credit for the tax the trustee pays, but that credit is non-refundable. So if a beneficiary’s marginal rate is below 30%, the excess credit will disappear. They can’t claim it back.
The treatment is different for corporate beneficiaries. They won’t receive any credit at all. That’s a deliberate design choice to stop private groups from routing income through a company beneficiary to avoid the minimum tax.
Three-Year Rollover Relief Window
The expanded rollover relief will allow you to transfer eligible assets out of a discretionary trust without immediate tax consequences. The window opens on 1 July 2027 and closes on 30 June 2030 (it gives you three income years to act).
This rollover is broader than existing provisions like the Subdivision 328-G small business restructure rollover. It covers transfers into both companies and fixed trusts.
The detailed eligibility rules are still being finalised through consultation, so the exact conditions may shift before the window opens.
Why the Bucket Company Strategy No Longer Works
Distributing trust income to a bucket company was one of the most popular tax planning strategies in Australia for decades. Under this approach, a trust would distribute profits to a company beneficiary at the 25% or 30% corporate rate. And then retain that cash for reinvestment.
But after July 2028, that strategy won’t work anymore. The trustee will have to pay a 30% minimum tax, and the corporate beneficiary will receive zero credit for it.
For example, a family trust distributing $100,000 to a bucket company would see the trustee taxed $30,000 first, with no offset flowing to the company. That’s effective double taxation, and it makes the whole approach unviable for most private groups.
Decision Point: Don’t assess the proposed changes in isolation. Consider how they affect succession planning, financing, and trust asset protection at the same time.
Capital Gains Tax Rollover Options for Trust to Company Transfers
Five CGT rollover options exist for trust-to-company transfers. They have different eligibility requirements for active assets, trading stock, and depreciating assets.
It’s important to choose the right CGT rollover based on your business type, asset mix, and structure. The wrong one could trigger unexpected tax liabilities, including capital gains tax.
The table below breaks down each of the main CGT rollover relief provisions:
| Rollover | What It Does | Best For | Limitations |
| Subdivision 122-A | A trust transfers CGT assets to a wholly owned company | Trusts with goodwill and other CGT assets | Excludes trading stock and depreciating assets |
| Subdivision 328-G | Small business entity transfers active assets between eligible restructuring entities | Small businesses with under $10m aggregated turnover | Requires a genuine restructure and the same ultimate economic ownership |
| Subdivision 124-N | A trust transfers assets to a company, and beneficiaries receive shares | Unit trusts converting to a corporate structure | Complex; poor fit for discretionary trusts |
| Division 615 | Unit trust converts to a company via a unit-for-share exchange | Unit trusts and fixed trusts are replacing the trust entirely | Only applies to unit trusts and fixed trusts |
| SB CGT Concessions | Reduces or eliminates CGT on qualifying eligible assets | Businesses wanting a fresh cost base at market value | No mirrored rollover for depreciating assets or trading stock |
Subdivision 122-A is the most commonly used rollover for discretionary trusts. The trust sells all the assets of the business to a new company it wholly owns. The transferor’s cost carries across as the rollover cost for the new entity. That means the company inherits the original cost base, rather than the current market value.
Subdivision 328-G has become increasingly popular with small businesses since it took effect on 1 July 2016. It covers a broader range of transferred assets, including revenue assets, trading stock, and depreciating assets, which 122-A doesn’t touch.
But it comes with stricter conditions. The ATO must be satisfied that the restructure is a genuine reorganisation of an ongoing business and not an inappropriately tax-driven scheme. The safe harbour rule in Law Companion Ruling LCR 2016/3 sets out what the ATO considers genuine.
The other three options suit more specific circumstances. Subdivision 124-N and Division 615 only work for unit trusts and fixed trusts, so most discretionary trust structures won’t qualify.
And while the small business CGT concessions can eliminate the tax bill entirely, they don’t provide rollover relief for depreciating assets or trading stock. You’d need to account for balancing adjustments on plant and equipment separately (some assets are treated very differently under the tax rules).
However, one thing applies across all five rollover provisions. If the ATO determines the restructure is driven by tax benefits rather than genuine commercial reasons, the general anti-avoidance rule under Part IVA can override any rollover relief you’ve claimed.
Hidden Costs of a Trust to Company Restructure
CGT rollover relief can defer capital gains tax, but it doesn’t eliminate other costs like stamp duty, GST, trading stock adjustments, and professional fees. These expenses often catch business owners by surprise and can add tens of thousands of dollars to what initially seemed like an affordable restructure.
The following four costs aren’t covered by CGT rollover relief:
- Stamp Duty by State: NSW and Victoria don’t charge transfer duty on business assets (excluding real property), but Queensland and Western Australia still do. QLD offers a small business exemption for transferred assets valued under $10 million, though you’ll need to meet turnover and ownership conditions to qualify.
- GST on Business Assets: Your company may need to pay GST on transferred assets. The exception is a qualifying going concern, where the business continues operating without interruption, and both parties are registered for GST.
- Trading Stock Gaps: As we covered in the rollover section, most CGT rollover provisions don’t extend to trading stock or depreciating assets. That means the trust may still face income tax liabilities on the transfer of inventory, and balancing adjustments on plant and equipment can create an unexpected bill.
- Professional and Compliance Fees: Accountants, tax advisers, and lawyers are all involved in a restructure of this size. You’re also looking at ASIC registration fees, new trust deed amendments, and potentially a business valuation. Total costs will depend on your business and the assets being transferred.
Even with CGT rollover relief, the overall cost can be higher than expected. That’s why it’s worth asking your adviser to review the full financial impact, rather than just the capital gains tax outcome.
Should You Choose a Company or a Fixed Trust?
A company is generally the better choice if you plan to retain profits and reinvest them in the business. However, a fixed trust may be more suitable if capital gains tax concessions and income distributions are more important to you.
In either case, both structures sit outside the proposed minimum tax on discretionary trusts.
To help you decide, let’s compare a company and a fixed trust in more detail.
When a Company Structure Fits Better
As you just read, a company structure fits better when your business reinvests most of its profits rather than distributing them annually. Retained earnings compound at the flat 25% corporate rate, and you’re not forced to push cash out to shareholders each income year.
That’s a major advantage for an ongoing business with high working capital needs. You can fund growth, hire staff, or acquire equipment without creating a separate loan arrangement.
However, the trade-off is the CGT discount. Companies don’t qualify for the 50% discount on a subsequent sale of assets. So if you’re planning to sell the business at some point in the future, the capital gains tax bill will be higher than it would be through a trust.
Growth Perspective: Retaining profits only creates value if the business can reinvest them at attractive returns. Otherwise, the tax deferral may offer little long-term benefit.
When a Fixed Trust Is the Smarter Move
Fixed trusts are explicitly exempt from the proposed 30% minimum tax on discretionary trusts. That alone makes them worth considering if you still want flow-through tax treatment without the new compliance burden.
They also allow income to pass through to beneficial owners, who are taxed at their individual marginal rates. And when the trust sells an asset held for more than 12 months, each beneficiary can claim the 50% CGT discount on their share of the gain.
The fixed trust structure also works well for succession planning because each beneficiary holds a defined interest in the trust. This ownership structure makes wealth transfers simpler than in a company, where you’d need to manage share transfers.
Steps to Complete a Small Business Restructure
A trust to company restructure follows six steps, including reviewing your current structure and registering the new entity with ASIC and the ATO. The whole process usually takes between two and six months to complete with professional support.
We recommend following the steps below from start to finish for most restructures:
- Review Your Current Structure: You should start the process by listing all the assets held in the trust, including goodwill, trading stock, real property, and plant and equipment. Your adviser will need a complete picture of the trust assets before recommending a rollover path.
- Model the Tax Cost: Every reorganisation has a different price tag depending on cost base, market value, and which rollover options are available. Get your accountant to run the numbers on at least two scenarios to estimate the potential income tax assessment under each option before proceeding.
- Pick the Right Rollover: Your specific circumstances will determine which provision fits best. For instance, a discretionary trust with mostly CGT assets might suit Subdivision 122-A, while a small business with trading stock could benefit more from 328-G.
- Transfer Active Assets: Once the rollover is locked in, the trust will transfer its active assets to the new company. The transferor’s cost carries across as the rollover cost, so the company inherits the original tax position rather than resetting at market value.
- Update Contracts and Accounts: Leases, supplier agreements, insurance policies, and bank accounts all need to be reassigned to the new entity. Also, don’t forget employee contracts and any government licences tied to the trust’s ABN.
- Register with ASIC: Lodge the new company registration with ASIC and apply for a fresh ABN and TFN. Plus, you should notify the ATO of the structural change, update your GST registration, and cancel the trust’s ABN if it’s no longer operating.
A company restructuring of this size isn’t a DIY job. That’s why you should get a tax adviser and a commercial lawyer involved from step one. The upfront cost will pay for itself if it keeps you out of an ATO dispute later.
Should You Make the Switch to a Company?
A trust to company restructure isn’t the right move for every business. But if you’re retaining substantial profits, dealing with Division 7A headaches, or watching the 2026 Budget’s 30% minimum tax creep closer, it’s worth running the numbers.
The rollover relief window opens on 1 July 2027 and closes on 30 June 2030. That gives you time to plan (but not time to waste).
So, talk to your accountant or tax adviser now, and get them to model the full cost of staying in a discretionary trust versus moving to a company or fixed trust. And for more guides on business structures, tax, and company registration in Australia, browse our other articles.
Disclaimer: This article is for general information only and does not constitute financial, tax, legal, or accounting advice. Everyone’s circumstances are different, and you should seek advice from a qualified accountant, tax adviser, or other professional before making any decisions. Australian Business Magazine (ABMAG) is not responsible for any actions taken based on the information in this article.
