Trusts and companies each offer different advantages, but the better choice depends on your tax position, asset protection needs, and long-term goals. There’s no one-size-fits-all answer here.
Both structures come with trade-offs across tax, asset protection, and growth potential. At Australian Business Magazine, we’ve been tracking how the 2026 Federal Budget proposals are influencing the way business owners think about this decision. We’ll share:
- How tax work under each
- What the Budget changes mean for family trusts
- How to work out which setup fits your goals.
Let’s begin with the core differences between the two structures.
What’s the Real Difference: Trust vs Company Australia?
A company is a separate legal entity that exists independently of its owners. In the meantime, a discretionary trust is a legal relationship where a trustee holds assets on behalf of beneficiaries. That single distinction flows into almost every other difference between the two.
| Factor | Discretionary Trust | Company |
| Legal identity | A legal relationship governed by a trust deed; no separate legal identity of its own | A separate legal entity under the Corporations Act 2001, registered with ASIC (Australian Securities and Investments Commission) |
| Control of assets | Trustee controls all trust assets under the trust deed; appointor holds power to remove the trustee | Directors manage business affairs on behalf of shareholders who hold equity |
| How profits flow | Must distribute income to beneficiaries each financial year or trustee pays 47% tax | Retains after-tax profits internally or pays them to shareholders as franked dividends |
| Lifespan | Up to 80 years in most states; Queensland allows 125 years; South Australia has no maximum | Exists indefinitely until formally wound up and deregistered with ASIC |
| Who sets the rules | Governed by the trust deed and general trust law, which varies by state | Regulated by ASIC under the Corporations Act 2001 with formal director obligations |
| Other structures | Unit trust beneficiaries hold fixed units similar to shares, rather than relying on trustee discretion | Proprietary limited company is the most common company business structure for small businesses |
You can set up both structures relatively quickly in Australia, but the costs differ. Registering a company with ASIC costs around $636 for a proprietary limited company. Meanwhile, setting up a discretionary trust typically involves legal fees for drafting the trust deed (ranging from $1,000 to $2,500 depending on complexity).
How Does Tax Work Differently in Each Structure?
Trusts offer more flexibility in distributing income, whereas companies provide a fixed tax structure and different options for retaining profits and growing the business. The two structures sit on opposite ends of the tax spectrum.
This is how each structure handles your tax obligations.
The Process of Trust Income Distribution
A discretionary trust does not pay income tax at the entity level. Instead, it passes income to beneficiaries, who pay tax at their own marginal rates.
Across the family businesses we have profiled over the years, income splitting is one of the main reasons owners choose a discretionary trust.
Distributing to family members on lower incomes, such as a non-working spouse or an adult child studying full-time, can produce real tax savings. These distributions can incur a noticeably lower effective tax rate for the family group overall.
How a Company Structures Taxes on Retained Profits
A company pays tax on its profits at the corporate tax rate before anything reaches the owners (which is a strong advantage when growth is the priority).
For instance, small businesses that qualify as base rate entities have an aggregated turnover under $50 million and no more than 80% passive income. These businesses have to pay a corporate tax rate of 25%.
After tax is paid, profits can stay inside the company to fund expansion rather than flowing out immediately. When profits do eventually leave, shareholders receive franked dividends carrying credits for the tax already paid. That reduces the risk of double taxation on the way out.
Capital Gains Tax: Where the Trust Holds the Edge
For assets held over 12 months, a discretionary trust can pass the 50% capital gains tax (CGT) discount directly to individual beneficiaries. The discount effectively halves the taxable capital gain before it hits their return (that’s one of the most valuable tax benefits available under Australian tax law).
A company, however, gets no such concession. It’ll have to pay tax on the full capital gain at the corporate rate, regardless of how long the asset was held.
For property investors and businesses with growing assets, trusts can reduce tax on capital gains by allowing beneficiaries to use available CGT concessions.
Does Your Structure Affect Succession and Family Wealth?
Yes, and it’s one of the most overlooked dimensions of the trust vs company debate, particularly for family-run businesses planning beyond the current generation.
A discretionary trust lets you pass control to the next generation by simply changing the trustee or appointor, and that transition doesn’t provoke a CGT event. The business assets stay inside the trust structure, protected and intact. That too without the need to formally transfer ownership each time control shifts hands.
In fact, when a business owner passes away with shares held in a company, those distributions form part of their deceased estate. That immediately exposes the family’s accumulated wealth to Will challenges and family provision claims from other parties.
Moving assets from a trust into a company under the 2026 Budget’s rollover window creates that same exposure (and restructuring later rarely comes cheap). That’s why many family businesses are approaching that decision with real caution right now.
Which Structure Offers Better Asset Protection?
Both structures can protect your personal assets, but they go about it in very different ways. A company leans on the corporate veil, while a trust leans on the legal separation between ownership and benefit.
Neither structure is bulletproof, so asset protection depends on how well it’s set up from the start. Take a look below.
Discretionary Trust Shields Assets from Creditors
Beneficiaries don’t legally own the family trust’s assets. The trustee does, and that distinction is what makes a discretionary trust so powerful for asset protection.
Because trust property is legally owned by the trustee rather than the beneficiaries, it’s separate from their personal assets. This means a creditor pursuing a beneficiary generally cannot reach assets held inside the trust.
Using a corporate trustee, a company set up solely to act in that role, adds another layer by limiting the personal liability of the individuals running the trust. An individual trustee can incur debts without one and put their own significant assets at risk.
How the Company Structure Protects Shareholders
A company is a separate legal entity, which means the company’s assets and the shareholders’ personal property stay on opposite sides of the fence. That separation is known as the corporate veil. It’s what gives shareholders limited liability protection against the company’s debts.
In practice, though, lenders regularly ask directors to provide personal guarantees before approving finance (a requirement many directors sign without fully reading the implications). Those guarantees pierce the veil immediately.
Directors also carry personal liability under the Corporations Act 2001 if they breach statutory duties, including trading while the company can’t pay its debts.
What Do the 2026 Budget Changes Mean for Trusts?
The proposed changes to discretionary trust taxation, announced in the 12 May 2026 Federal Budget, are the largest shake-up to trust structures in decades. We’ve observed a noticeable uptick in questions from Australian business owners about restructuring since that announcement.
The following six points summarise what’s changing:
- The 30% Minimum Tax Rule: From 1 July 2028, trustees of discretionary trusts will pay a minimum 30% tax on all the trust’s income distributed to beneficiaries. This measure isn’t yet law and remains subject to consultation before legislation is introduced.
- Who Gets Hit Hardest: Beneficiaries earning below the 30% tax rate threshold (currently $45,001) will lose excess non-refundable credits. This reduces the tax benefits previously available through low-income family members.
- The Bucket Company Problem: Corporate beneficiaries receive no credit for the 30% tax paid by the trustee. Indicative modelling suggests layered structures could face rates of up to 51% at the corporate level, with further tax when profits reach shareholders.
- The Rollover Relief Window: A three-year restructure window opens from 1 July 2027. It gives eligible taxpayers time to transfer assets out of discretionary trusts into companies or fixed trusts without immediate CGT consequences.
- What This Means for Family Businesses: The impact of discretionary trust tax changes on family businesses is material. No grandfathering applies here, which means every existing discretionary trust is captured from the effective date.
The rollover window from 1 July 2027 gives eligible business owners a rare chance to restructure without an immediate CGT bill. Unfortunately, it runs for three years only.
That’s why any business operating through a discretionary trust should have a conversation with their accountant well before that window opens.
Is a Company the Stronger Choice for Business Growth?
A company can support growth through easier profit retention, clearer ownership structures, and better access to external investment. A trust, by contrast, introduces complications that most outside investors aren’t willing to work around.
Below you’ll see how the two structures compare on growth and ongoing management.
Raising Capital and Attracting Outside Investment
A proprietary limited company is built for raising capital in a way that a discretionary trust isn’t. Shares are a familiar instrument. Investors know how to price, transfer, and structure their rights around them.
Venture capitalists and outside investors almost always require a company structure before committing funds, and for good reason.
Moreover, companies unlock government incentives that trusts can’t access as a business structure. This includes the R&D tax incentive, which is available only to incorporated entities. SIC (Early Stage Innovation Company) concessions are also available for qualifying startup companies looking to support business growth.
Compliance Costs and What Each Structure Costs to Run
Running either structure carries ongoing management obligations, and neither one is light on paperwork. Companies must:
- Pay annual ASIC review fees
- Lodge company tax returns
- Maintain shareholder and officer registers
- Hold annual general meetings
- Meet the legal obligations imposed on directors (under the Corporations Act 2001)
Meanwhile, trusts require annual trustee distribution resolutions completed before 30 June each financial year, trust tax returns, and periodic trust deed reviews to stay compliant.
A trust operating with a corporate trustee effectively runs two sets of compliance obligations simultaneously: one for the trust and one for the trustee company.
How Is Tax on Trust Distributions Calculated?
Tax on trust distributions depends on each beneficiary’s marginal tax rate. The trust itself doesn’t pay income tax on distributed amounts. Instead, each beneficiary declares their share and pays tax accordingly.
A simple way to explain the calculation is:
Tax payable = Taxable trust distribution × Beneficiary’s marginal tax rate − Available tax credits
Example:
- A trust distributes $50,000 to a beneficiary
- The beneficiary’s marginal tax rate is 30%
- Tax payable: $50,000 × 30% = $15,000
If the distribution includes franking credits or other tax offsets, those reduce the final tax payable.
Trust vs Company: Which One Suits Your Goals?
The best structure depends on income level, family situation, growth plans, and tax efficiency. There’s no universal winner in the company vs trust debate. A practical side-by-side comparison might help you work it out.
| Factor | Family Trust | Company |
| Income splitting | Trustee can distribute income to low-tax family members each year | No discretion; profits distributed as dividends only |
| Retaining profits for growth | Difficult; undistributed income taxed at 47% at trustee level | Ideal; profits retained at 25% corporate tax rate |
| CGT discount on asset sales | 50% discount for assets held over 12 months | Not available; full capital gain taxed at corporate rate |
| Raising capital from investors | Investors can’t buy into a trust the way they can a company | Issue shares to bring in new investors or partners directly |
| Succession and wealth transfer | Trustee or appointor change doesn’t trigger CGT | Share transfer on death forms part of estate, may trigger CGT |
| Impact of 2026 Budget changes | High; 30% minimum tax from 1 July 2028 captures all existing trusts | Minimal direct impact |
| Best suited for | Family businesses, asset holders, income splitting across beneficiaries | Growth businesses, external investment, retained profit strategies |
A discretionary trust tends to win on tax benefits and legal protection when income splitting is the goal and trust assets include appreciating investments. On the other hand, a company benefits when retained profits, business growth, and raising capital are the priorities.
The structure you choose today determines what options remain open to you further down the road. With the 2026 Budget changes now in the picture, that decision is a moving target for anyone currently operating through a family trust.
Can You Use Both a Trust and a Company Together?
Yes, and many established Australian businesses already do. The hybrid approach pairs a discretionary trust with an operating company.
In this case, the trust holds shares in the company rather than running the business directly. As a result, the company can retain profits at the 25% corporate rate, while the trust distributes dividends to beneficiaries in a tax-effective way.
It’s, in fact, a powerful combination for profitable family businesses. However, it risks Division 7A compliance (rules for company money used by owners) and increases ongoing management costs across both structures.
When Should You Review or Switch Your Structure?
Your business structure isn’t a one-time decision. Personal Services Income rules can override both a trust and a company structure entirely. It may treat the income as belonging to the individual who earned it, regardless of the structure used.
Several changes can signal that it’s time to reassess your structure. Common catalysts for a structural review include:
- Seeking outside investment
- Preparing for a business sale
- The 2026 Budget changes to discretionary trust taxation
Switching structures activates CGT and potentially stamp duty on asset transfers. So keep an eye on the 2026 rollover window from 1 July 2027 as the most tax-effective exit currently available.
One Decision, Long-Term Consequences: Getting It Right
Neither structure is inherently better. The right business structure comes down to your personal circumstances, income, and where you want the business to go.
If asset protection and income flexibility are the priorities, a discretionary trust has historically been the stronger fit. On the flip side, if growth, outside investment, and retained profits are what you’re building toward, a company structure is hard to beat.
The 2026 Budget changes have shifted the ground considerably for trust holders. So we suggest talking to a qualified accountant before that rollover window opens.
And for more on how the proposed budget changes affect Australian businesses, Australian Business Magazine has you covered. Stay informed with our wider coverage of tax, finance, and business policy changes.
Frequently Asked Questions About The Trust vs Company Debate
Still weighing up the trust vs company decision? The answers below cover some of the finer details that don’t always come up in the main comparison.
What Does a Corporate Trustee Actually Do?
A corporate trustee is a company appointed to manage a discretionary trust on behalf of its beneficiaries. Because it’s a separate legal entity, it limits the personal liability of the individuals behind the trust. Most accountants recommend using one over an individual trustee, especially when the trust holds significant assets or runs an active business.
Can a Small Business Access the CGT Discount Through a Trust?
Yes. A discretionary trust can pass the 50% capital gains tax discount to individual beneficiaries for assets held over 12 months. Companies don’t get this concession at all. For business owners holding appreciating assets, this difference alone can make the trust the more tax-effective structure.
Do PSI Rules Affect Both Trusts and Companies Equally?
Personal Services Income rules apply to both structures and can override either one entirely. If the ATO (Australian Taxation Office) determines that income is generated through personal effort rather than a business structure, it attributes that income directly to the individual.
This applies even if a family trust or company is in place. So we strongly recommend getting specialist advice on PSI (Personal Services Income) eligibility before setting up either structure.
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.
