Family Trust vs Company in Australia: Tax, Costs, Which Fits

Choose a family trust if your business is profitable, you pay out most of its profit, and adults in your family on lower incomes genuinely share it. Choose a company if you're reinvesting profit, want investors or expect losses. On 2026-27 rates, splitting $150,000 between two adults with no other income costs $27,040 through a trust, $29,040 through a company paying dividends, or $37,500 if the company keeps it.

That summary hides the questions that decide most cases: whether anyone in the family has unused low tax brackets, how much profit you need to keep, the 30 June distribution deadline, the 2026 High Court decision on bucket companies, and a proposed 30% minimum tax on trusts from 1 July 2028. This guide covers each, with tax at three profit levels using the same method as our sole trader vs company guide.

Family trust vs company at a glance

As at 18 October 2026.

How each structure is taxed

Company

A company is its own taxpayer. Most small businesses qualify as a base rate entity (aggregated turnover under $50 million, no more than 80% passive income) and pay 25%; others pay 30%. There's no tax-free threshold.

Profit can stay in the company at that rate. When it comes out as a franked dividend, the shareholder declares it with a credit for the company tax already paid, then pays top-up tax at their marginal rate or gets a refund if their rate is lower. Dividends follow shareholdings: if you and your spouse own 50% each, you get 50% each every time a dividend is paid. Salaries are deductible but must be for genuine work at a reasonable rate. Our guide to setting up a company covers the rest.

Family trust

A trust doesn't pay tax on income it distributes. Before 30 June each year the trustee resolves who is entitled to that year's income, and each beneficiary pays tax on their share at their own rate. Because the trust is discretionary, the split can change every year: more to you in one year, more to an adult child at university the next. That flexibility is the whole tax case for a trust.

Two extras help a trading trust. Each individual beneficiary can claim the small business income tax offset (16% of the tax on their share of business income, up to $1,000) if the trust is a small business entity. And a beneficiary with no other income gets the full tax-free threshold and lower brackets.

The penalties for getting it wrong are blunt, as the next sections show.

Tax at $100,000, $150,000 and $250,000 of profit

Illustrative. Total tax paid this year by the trust or company and the family members, for 2026-27. Assumptions: ATO 2026-27 resident rates, 2% Medicare levy, the low income tax offset and the small business income tax offset where they apply, a base rate entity company, two adults with no other income, and income that isn't caught by the personal services income rules. Same method as our sole trader vs company guide.

How the columns work:

• Trust at $150,000: each adult is taxed on $75,000. Tax at resident rates is $4,020 plus 30% of $30,000, or $13,020. The small business offset is capped at $1,000 and the Medicare levy is $1,500, so each pays $13,520, or $27,040 together.
• Company dividends at $150,000: the company pays $37,500 and each shareholder receives $56,250 plus a $18,750 franking credit. Each is taxed on $75,000 ($13,020 plus $1,500 Medicare levy) and uses the credit, so total tax across the company and both shareholders is $29,040. The gap to the trust is the two small business offsets the company route can't claim.
• Company keeps all: 25% of profit. No one has received the money yet, so this is tax deferred, not saved.

What the numbers show:

• With a second adult on a low income, both structures beat a sole trader by a wide margin, and the trust edges the company by up to $2,000 a year because of the offsets.
• The trust wins on flexibility, the company on retention. A company can only split income in fixed proportions through shareholdings set up in advance. A trust can change the split each year and include adult children. But a company can keep profit at 25% for reinvestment, and a trust can't without a bucket company.
• If both adults already earn in the 30% band ($45,001 to $135,000), splitting saves little. Our family trust costs guide shows a partner on a $90,000 salary cuts the saving at $150,000 of profit to about $2,050 a year.

A bucket company example. At $250,000, a trust could distribute $100,000 to each adult ($21,520 tax each) and $50,000 to a company beneficiary ($12,500 at 25%). Total tax this year is $55,540, about $3,500 less than the equal split, with $37,500 left in the company. That's a deferral: top-up tax is due when the company pays it out as dividends, and the rules on unpaid entitlements below still apply.

Distributions and the 30 June deadline

The ATO's resolutions checklist sets out the rules every trustee needs:

• Resolve by 30 June. A resolution making beneficiaries entitled to trust income only counts for tax if it's made by the end of the income year, or by any earlier date the deed requires.
• Check the deed first. The beneficiaries must be within the class the deed allows and not excluded, and the trust must not have vested.
• If it fails, someone else pays. Default beneficiaries or the trustee may be assessed instead, and the ATO says a trustee assessment may be at the top rate of tax (47% including the Medicare levy).
• Put it in writing. Whether a written resolution is legally required depends on the deed, but streaming franked dividends or capital gains needs a written record. Capital gains can be streamed by appointing capital up to 31 August.
• Family trust elections. If the trust has made a family trust election, distributions outside the family group attract family trust distribution tax.
• Children. A minor's unearned trust income above $416 is taxed at penalty rates, and above $1,307 the whole amount is taxed at 45% (ATO).
• Beneficiary TFNs. From 1 July 2026, trustees of closely held trusts report beneficiary TFNs in the trust tax return instead of quarterly TFN reports (ATO).

The money must genuinely go where the paperwork says. Distributing on paper to a low-income relative while the cash stays with you is what section 100A targets, and it can tax the trustee at the top rate.

A company has no equivalent deadline. Profit not paid as wages or dividends simply stays in the company at 25%.

Division 7A and unpaid present entitlements

For a company, Division 7A stops owners taking money out tax-free. Payments, loans and forgiven debts to shareholders or their associates can be treated as unfranked dividends unless they are repaid or put on a written complying loan agreement by the company's lodgment day. For 2026-27 the benchmark interest rate is 8.77%. Our Division 7A review checklist covers the fix.

For a trust distributing to a bucket company, the question has been whether an unpaid present entitlement (UPE), meaning income the trust has allocated to the company but not paid, counts as a loan. The ATO treated it as one for years. On 10 June 2026 the High Court decided Commissioner of Taxation v Bendel [2026] HCA 18 against the ATO. In its decision impact statement (updated 1 July 2026) the ATO says:

• no Division 7A loan arises where a private company beneficiary does nothing about its entitlement
• if the funds are paid or lent to, or used to forgive a debt of, a shareholder of the company or their associate, the UPE rules in Subdivision EA may apply
• if the entitlement came from a reimbursement agreement, section 100A may tax the trustee at the top rate
• it is reviewing its guidance and may issue more.

That isn't the end of it. The government announced in the 2018-19 Budget that it would legislate to treat UPEs as Division 7A loans, and when it released the minimum trust tax draft on 3 September 2026, Treasury said that legislation would be progressed separately. The 2028 draft also gives corporate beneficiaries no credit for the trustee's 30% tax. Bucket companies are firmly accountant territory.

The proposed 30% minimum tax on trusts

In the 2026-27 Budget on 12 May 2026, the government announced a 30% minimum tax on discretionary trusts from 1 July 2028. The ATO says it is not yet law (page updated 3 September 2026). Treasury released exposure draft legislation on 3 September 2026, with consultation closing 18 September. As drafted:

• the trustee pays 30% on the trust's taxable income
• non-corporate beneficiaries get a non-refundable credit for that tax, so beneficiaries on lower rates lose the difference
• corporate beneficiaries get no credit
• a trust can elect to fix its beneficiaries and their shares and stay outside the regime, at the cost of its discretion
• genuine testamentary trusts are excluded, and a 3-year roll-over from 1 July 2027 would let businesses move assets out of trusts, for example to a company.

In the table above, the trust's tax at $150,000 would rise from $27,040 to at least $45,000 (30% of $150,000), overtaking both company columns, unless the trust made the fixed-entitlement election. BDO's analysis of the draft notes that the roll-over defers tax rather than removing it, and that GST and state duty still apply. Model both scenarios with your accountant before you sign a deed or restructure.

One rule neither structure beats

If your income comes mainly from your own personal skills, as a contractor, consultant or freelancer paid for your time, the personal services income rules can attribute it back to you whether a trust or company invoices it. Neither structure lets you split PSI with your family.

Asset protection

Both structures put a barrier between business creditors and your house, and both barriers have holes.

A company gives limited liability: its debts are its own. The holes are the personal guarantees landlords, suppliers and banks ask you to sign, director penalty notices for unpaid PAYG withholding, GST and super, and personal liability if you let the company trade while insolvent.

A trust protects in a different direction. Beneficiaries of a discretionary trust have no fixed entitlement, so a beneficiary's personal creditors generally can't reach trust assets. The trustee, though, is personally liable for the trust's debts, which is why nearly every trading trust uses a corporate trustee. Run a business through a trust with yourself as individual trustee and you're as exposed as a sole trader.

Neither structure reliably protects assets in a family law dispute, where courts routinely look through both. Neither protects you from a guarantee you signed personally, and neither replaces insurance such as public liability cover.

Setup and running costs

As at 18 October 2026. ASIC fees from ASIC's fee schedule; provider and accounting prices from the sources linked in our family trust costs guide and company registration guide.

The accounting estimates come from firms that sell the service (Liston Newton, Bentleys, What If Advice, Y&S Accounting and Scale Suite). We found no independent survey, so get fixed quotes. The key difference: a trust with a corporate trustee is two entities, so you pay for the trust's accounts and return plus the trustee company's ASIC compliance. The tax saving from distributions has to beat that every year.

Losses: trapped, carried forward or carried back

This one matters more than most people expect, because plenty of businesses lose money in year one.

A trust can't distribute a loss. Losses stay in the trust and can only be used against its own future income, subject to trust loss tests that a family trust election usually simplifies. If the trust folds before it turns a profit, the losses die with it.

A company can carry losses forward if the same people hold more than 50% of the shares from the loss year to the year it uses the loss, or the business passes the same or similar business test. Companies also regained a loss carry-back in 2026: under the Treasury Laws Amendment (Tax Reform No. 2) Act 2026, an eligible company can carry back a loss from an income year starting on or after 1 July 2026 against tax it paid in up to the 2 previous years, as a refundable tax offset (Treasury, 19 August 2026). KPMG's summary of the ATO guidance says the offset is limited by the company's franking account balance. It helps an established company that has paid tax, not a brand-new one. A separate proposal for refundable losses for start-up companies from 2028-29 is not yet law.

Neither structure lets you offset business losses against your salary. A sole trader can, subject to the non-commercial loss rules, which is one reason a loss-making start-up is often better off staying simple.

Retaining profit to grow

The company wins outright. Profit stays in the company at 25% and funds stock, equipment, hiring and marketing, and you decide when to take it out.

A trust has to distribute by 30 June or pay 47%. The workaround is a bucket company, covered above: lower tax now, but more entities, more fees, the Bendel aftermath and a proposed 2028 rule that would deny corporate beneficiaries any credit.

Bringing in investors or partners

The company wins again. Shares are what investors, lenders and business partners understand: you can issue new shares, sell some of yours, create different share classes and set up an employee share scheme. A shareholders agreement handles the rest.

A discretionary trust has no shares. Beneficiaries have no fixed interest, so there's nothing to sell someone who wants 20% of your business. Unit trusts exist for that purpose, but they're a different structure with a different tax profile, and most investors would rather see a company.

Succession and estate planning

Here the trust usually wins. Trust assets aren't yours, so they don't form part of your estate or pass under your will, and they're harder to challenge. Control passes by handing over the appointor role and the directorship of the trustee company, with no change in who owns the assets.

The trust must vest (end) by the date in its deed: within 80 years in most states. South Australia has abolished the rule against perpetuities (Law of Property Act 1936, section 61), and Bentleys reports that Queensland moved to a 125-year limit in August 2025. Check your own deed's vesting date.

Company shares are personal assets. They pass under your will, they're exposed to estate challenges, and transferring them during your lifetime is normally a CGT event. That's a large part of why so many family companies end up owned by a family trust rather than by individuals.

Admin: what each demands every year

Both need their own ABN, TFN and bank account, their own tax return, proper bookkeeping, and GST registration within 21 days of turnover reaching $75,000.

A company brings ASIC obligations: the annual review and solvency resolution (see our annual review checklist), registers and minutes, a director ID for every director before appointment, and discipline about how money leaves the company.

A trust brings trustee obligations: a valid resolution by 30 June every year, distribution records, beneficiary TFNs in the tax return, tracking the vesting date, keeping the deed current, and showing that beneficiaries actually received their entitlements, plus the corporate trustee's ASIC compliance. A trading trust with a corporate trustee is the most administratively demanding structure most small businesses will use.

The hybrid most accountants land on

The trust-versus-company question often has a "both" answer, in one of three shapes:

1. Company as trustee of the trust. The trust runs the business; the company only holds the trustee's office. It costs $636 to set up and $342 a year in ASIC fees, and it's the standard way to run a trading trust safely.
2. Trading company owned by a family trust. The company runs the business, retains what it needs at 25%, and pays franked dividends to the trust, which spreads them across the family. You get retained-profit efficiency, distribution flexibility and estate-planning benefits in one structure. The trust normally needs a family trust election to pass franking credits through. Under the 2028 draft, the trustee could use franking credits to pay the minimum tax.
3. Both at once. A trading company owned by a trust, with a corporate trustee. Three entities, two ASIC annual review fees ($684 a year) and three sets of accounts, so it only makes sense once the business makes real money.

Option two is the one you'll hear about most. It works, but price in the compliance cost and the 2028 proposal before you set it up.

Which structure fits your situation

On a sale, the small business CGT concessions currently need aggregated turnover under $2 million or net CGT assets of $6 million or less (ATO). Holding Redlich reports that the 2026 reform law lifts the turnover threshold for the 50% active asset reduction to $10 million from 1 July 2027, alongside the replacement of the CGT discount. How you hold the business on day one decides what's available on exit, so make this decision with your accountant before you register anything.

Our deep dives on setting up a company and running a business through a family trust cover each structure on its own terms.

Trust vs sole trader

If you're weighing a trust against staying a sole trader, the comparison is simpler. A sole trader pays nothing to set up, lodges one tax return, can offset business losses against other income and pays tax at marginal rates on the whole profit, with no asset protection. A trust costs more to establish and run, and offers asset protection, flexible distributions and income splitting.

The maths turns on who you can split with. On $120,000 of profit, a sole trader pays $27,920 for 2026-27; a trust distributing $60,000 each to you and a partner with no other income pays $17,240, a saving of $10,680 before running costs. On $70,000 with nobody to distribute to, the trust saves nothing and costs you thousands. And the proposed 30% minimum tax would, as drafted, remove most of the saving in the first example from July 2028. Our sole trader guide covers how the simple option works and when to outgrow it.

Key takeaways

• A company pays a flat 25% and can retain profit; a trust pays nothing itself but must distribute by 30 June or pay 47% on what's left.
• On 2026-27 rates, splitting $150,000 between two adults with no other income costs $27,040 through a trust, $29,040 through a company paying franked dividends and $38,570 as a sole trader; the trust's edge is the beneficiaries' small business income tax offsets.
• The High Court's Bendel decision means a bucket company's unpaid entitlement isn't automatically a Division 7A loan, but the ATO says Subdivision EA and section 100A still apply and the government still plans to legislate.
• The proposed 30% minimum tax on discretionary trusts from 1 July 2028 is a draft, not law, but would lift the trust's tax at $150,000 to at least $45,000 unless the trust fixes its distributions.
• Companies win on retained profit, investors and losses (including the carry-back for losses from 2026-27); trusts win on flexibility and succession.
• Many established family businesses use both: a trading company owned by a family trust, or a trust with a corporate trustee.

Where to get help

• Australian Taxation Office: minimum tax on discretionary trusts, the trustee resolutions checklist, the Bendel decision impact statement and company tax rates.
• business.gov.au: the business structure comparison is the government's plain-language starting point.
• ASIC: registering a company and current fees.
• Australian Business Registry Services: apply for a director ID before you're appointed a director, including of a corporate trustee.
• Tax Practitioners Board: check that your tax agent is on the TPB register.
• Your accountant or registered tax agent: structure is the one decision where paying for two hours of advice before you start is almost always cheaper than fixing it later. Ask them to model your numbers with and without the 2028 trust changes.

Related tasks

See every step in setting up your business in the business registration hub.