Trust vs Company in Australia: Which Structure Should You Choose?

Choose a family trust if your business is profitable, you pay out most of what it earns, and you have a spouse or adult family members to share the income with; choose a company if you're reinvesting profit to grow, expect early losses or want to bring in investors. The trust's advantages are flexible distributions, the 50% CGT discount and clean succession; the company's are a flat 25% rate on retained profit, losses that carry forward and ownership through shares. Here's the head-to-head, the numbers, and the decision by scenario — including when the honest answer is neither yet.

Trust vs company at a glance

	Discretionary (family) trust	Pty Ltd company
What it is	A legal relationship: a trustee holds and runs the business for the beneficiaries under a trust deed	A separate legal person that owns the business; directors run it, shareholders own it
Tax on profit	Nil in the trust; beneficiaries pay at their own marginal rates (0–45% plus 2% Medicare levy). Anything undistributed is taxed at 47%	Flat 25% for most small businesses; 30% if turnover is $50 million or more or income is mostly passive
50% CGT discount	Yes, on assets held 12+ months, flowing through to beneficiaries	No
Losses	Trapped in the trust; usable only against the trust's own future income, and lost if the trust winds up first	Carried forward inside the company, subject to the ownership or business continuity tests
Retaining profit	Poor — distribute by 30 June or pay 47%	Strong — leave it in at 25%
Asset protection	Good with a corporate trustee; beneficiaries have no fixed entitlement a creditor can seize	Good — limited liability, subject to personal guarantees and director duties
Bringing in investors	Very hard — there are no shares to sell	Easy — issue or sell shares
Succession	Strong — control passes with the appointor role, without a CGT event	Shares pass under your will; transfers can trigger CGT
Setup cost	$1,500–$3,000 with a corporate trustee, plus stamp duty on the deed in some states	$636 ASIC fee, plus $100–$600 if an agent registers it
Ongoing government fees	$342 a year for the trustee company	$342 a year ASIC annual review
Annual accounting	Commonly $2,000+	Typically $1,500–$3,000+
Admin	Highest — annual resolutions, distribution minutes, deed maintenance, plus running the trustee company	Moderate — ASIC review, registers, Division 7A discipline on drawings
Lifespan	Must vest within 80 years in most states (125 in Queensland; no limit in SA)	Perpetual

Figures as at September 2026.

Tax: where the money actually differs

How a company is taxed

A company is its own taxpayer. Most small businesses qualify as a base rate entity — aggregated turnover under $50 million and no more than 80% of income from passive sources like rent, interest and dividends — and pay a flat 25%. Everyone else pays 30%. There's no tax-free threshold: the company pays 25% from the first dollar.

Profit can stay in the company at that rate indefinitely. When it comes out as a dividend, the shareholder declares it with a franking credit for the 25% already paid, then pays top-up tax at their marginal rate (or gets a refund if their rate is lower). The end result for a given person is the same tax they'd pay as a sole trader — the company's advantage is timing, not magic. The other limit: dividends follow shareholdings. If you and your spouse own 50% each, you get 50% each, every year, whether or not that's tax-efficient.

How a trust is taxed

A trust doesn't pay tax on profit it distributes. Before 30 June each year the trustee resolves who gets what, and each beneficiary pays tax on their share at their own rate. Because the trust is discretionary, the split can change every year — $90,000 to you this year, $40,000 to your adult child next year while they're at uni. That flexibility is the whole tax case for a trust.

The penalties for getting it wrong are blunt. Miss the 30 June resolution, or leave income undistributed, and the trustee is taxed on it at 47%. Distributions to children under 18 are taxed at the top rate above $416 a year. And the money has to 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 the ATO pursues it.

The numbers on $150,000 profit

Structure	Tax for 2026–27	Effective rate
Sole trader (all taxed to you)	$39,570	26.4%
Family trust splitting $75,000 each to you and your spouse	$29,040	19.4%
Company keeping every dollar in the business	$37,500	25%

Assumes 2026–27 resident rates with the 2% Medicare levy, no offsets, and that your spouse has no other income.

Read that table carefully, because it shows both structures' strengths. The trust saves more than $10,000 against the sole trader — but only because there's a second person on low brackets to distribute to, and only if they really receive the money. The company's $37,500 looks worse, but the $112,500 left over is still inside the business funding growth. Pull it out as dividends to the same two people and you land close to the trust's figure; leave it in for five years and you've had the use of the tax difference the whole time.

The proposed 30% minimum tax on trusts

In the May 2026 Federal Budget the government announced a 30% minimum tax on discretionary trusts from 1 July 2028. As announced, the trustee would pay 30% up front and non-corporate beneficiaries would receive a non-refundable credit — so anyone on a marginal rate below 30% would lose the excess. In the example above, the trust's bill would float up to at least $45,000, overtaking the company. A three-year restructure rollover is proposed to let businesses move out of trusts without a CGT hit.

As at September 2026 this is an announcement, not law, and the detail may change. But if you're choosing a structure today, you're choosing for a world where distributing to low-income family members might stop saving tax two years from now. Model both scenarios with your accountant before you sign a deed.

One rule neither structure beats

If your income comes mainly from your own personal skills — a contractor, consultant or freelancer paid for your time — the personal services income rules can attribute that income back to you regardless of whether a trust or company invoices it. Neither structure lets you split PSI with your family. Ask your accountant whether the rules bite before you build a structure around a tax saving that may not exist.

Asset protection

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

A company gives you limited liability: the company's debts are the company's. The holes are the personal guarantees landlords, suppliers and banks will 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've paid for a structure that leaves you as exposed as a sole trader.

Neither structure reliably protects assets in a family law dispute; courts routinely look through both. And neither protects you from a guarantee you signed personally.

Setup and running costs

A company is the cheaper structure at both ends: one $636 ASIC registration, then $342 a year in annual review fees plus a simpler set of accounts (as at September 2026). A trust stacks up more — the deed and establishment advice, stamp duty on the deed in NSW, Victoria and the NT, a second $636 if you add a corporate trustee, that company's own $342 a year, and a heavier accounting bill for the trust's financial statements, tax return and distribution minutes.

The rough rule: a trust costs $1,000–$1,500 a year more to run than a plain company, and the tax saving from distributions needs to comfortably beat that before the trust earns its keep. Every fee, line by line, is in our company setup costs guide and family trust setup costs guide.

Losses: trapped vs carried forward

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 are quarantined inside the trust and can only be used against the trust's own future income — subject to trust loss tests that a family trust election usually solves. If the trust folds before it turns a profit, the losses die with it. The election has its own price: distributions outside the family group attract family trust distribution tax at 47%.

A company carries losses forward indefinitely too, but with a simpler test: the same people must hold more than 50% of the shares from the loss year to the year you claim it (or the business must pass the business continuity test). Bring in an investor who takes 60% and you can lose the old losses, so plan around it.

Neither structure lets you offset business losses against your salary or other personal income. A sole trader can, subject to the non-commercial loss rules — 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%, 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 classic workaround is distributing to a corporate beneficiary — a "bucket company" — so the profit is taxed at 25% while the cash stays in the trust as an unpaid entitlement. For 16 years the ATO treated that unpaid amount as a Division 7A loan; on 10 June 2026 the High Court's Bendel decision rejected that view, forcing the ATO to revisit its ruling. That's helpful, but section 100A and other anti-avoidance rules still apply, the government may legislate a response, and the proposed 2028 minimum tax specifically denies corporate beneficiaries a credit. Bucket companies are strictly accountant territory.

Bringing in investors or partners

The company wins again. Shares are the currency 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 anyway.

Succession and estate planning

Here the trust usually wins. Trust assets aren't yours — they belong to the trust — so they don't form part of your estate, don't pass under your will and are far harder to challenge. Control passes by handing over the appointor role and the directorship of the trustee company, with no change of ownership and so no CGT event. The trust itself can run 80 years in most states, 125 in Queensland and indefinitely in South Australia.

Company shares are personal assets. They pass under your will, they're exposed to estate challenges, and transferring them to the next generation 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 of you every year

Both need their own ABN, TFN and bank account, their own tax return, proper bookkeeping, and GST registration once turnover hits $75,000. From there the lists diverge.

A company brings ASIC obligations: an annual review with a solvency resolution, keeping registers and minutes, a director ID for every director (free, from the Australian Business Registry Services, and required before appointment), and discipline about how money leaves the company — wages, dividends or a documented loan, never "just a transfer", or Division 7A treats it as an unfranked dividend.

A trust brings trustee obligations: a valid distribution resolution by 30 June every year (earlier if the deed says so), distribution minutes, tracking the vesting date, keeping the deed current, documenting that beneficiaries actually received their entitlements, and running the corporate trustee's ASIC compliance on top. A trading trust with a corporate trustee is the most administratively demanding structure most small businesses will ever 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 does nothing except hold the trustee's office. It costs an extra $636 to set up and $342 a year to keep, 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 up to the trust, which spreads them across the family. You get retained-earnings efficiency, distribution flexibility and estate-planning benefits in one structure. The trust normally needs a family trust election to pass franking credits through, and the business's goodwill sits in the company where there's no CGT discount — though a sale of the shares by the trust can be a different story. Get advice.
3. Both at once. A trading company owned by a trust, with a corporate trustee. Three entities, three sets of fees, and a structure that only makes sense once the business is generating real money.

If you're searching for a "family business structure", option two is the one you'll hear about most. It works, but it's a $4,000-plus-a-year commitment in compliance before you've saved a cent.

Which structure fits your situation

Profitable family business paying out most of its profit → trust

Two or more adults in the household, profit comfortably above $100,000, most of it spent on living costs rather than reinvested, and a business likely to build saleable value. A trust with a corporate trustee gives you the distribution flexibility, the CGT discount and the succession benefits — with the 2028 proposal as the risk you must price in.

Scaling business reinvesting profit or raising capital → company

You're ploughing profit back into stock, staff or equipment, you might take on an investor or partner, or a bank will want a clean entity to lend to. A company is the answer; a trust as shareholder can come later if the family tax and estate planning justify it.

Solo operator under about $100,000 → probably neither yet

You're the business, you spend what you earn and nobody else is on the payroll. Neither structure will save you tax that covers its running costs, and the PSI rules may block income splitting anyway. Stay a sole trader, get your systems right, and revisit when profit and risk grow — moving into a company or trust later is a well-worn path with rollover relief available.

Expecting losses in the first year or two → company, or stay simple

Losses in a trust are trapped; in a company they carry forward; as a sole trader they may offset your other income. Don't start a loss-making venture in a trust.

Building something to sell → trust, or company owned by a trust

The 50% CGT discount and the small business CGT concessions (available where aggregated turnover is under $2 million or net assets under $6 million) can together take a huge bite out of tax on a sale. How you hold the business on day one determines what's available on exit day, so this is a decision to make 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 than trust versus company. 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 zero asset protection. A trust costs $1,500–$3,000 to establish and $2,000 or more a year to run, and delivers asset protection, the CGT discount and the ability to split income.

The maths turns on how much you can split. On $120,000 profit, a sole trader pays about $28,920 for 2026–27; a trust distributing $60,000 each to you and a spouse with no other income pays about $19,440 — a saving of roughly $9,500, or $6,500–$7,500 after the extra 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 announced, wipe out 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 indefinitely; a trust pays nothing itself but must distribute by 30 June or pay 47% on what's left.
• Trusts get the 50% CGT discount and can vary who gets the profit each year; companies get neither, but win on losses, retained earnings and bringing in investors.
• A trust costs more to set up ($1,500–$3,000 plus stamp duty) and roughly $1,000–$1,500 a year more to run than a company — the tax saving has to beat that.
• The proposed 30% minimum tax on discretionary trusts from 1 July 2028 isn't law yet, but it could remove the benefit of distributing to low-income family members; model your decision both ways.
• Most established family businesses use both: a trading company owned by a family trust, or a trust with a corporate trustee.
• Under about $100,000 profit with nobody to split with, neither is worth it yet — stay a sole trader and restructure when the numbers justify it.

Where to get help

• Australian Taxation Office — minimum tax on discretionary trusts tracks the 2028 proposal; the trustee resolutions checklist covers the 30 June rules; and company tax rates explains the base rate entity test.
• 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.
• 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. Check they're registered on the Tax Practitioners Board register, and ask them to model your numbers with and without the 2028 trust changes.