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Neither structure is better. A company is built to hold and reinvest profit at a flat rate. A trust is built to distribute it flexibly, and up to 30 June 2027 it has also been the better owner of assets that grow in value. That second advantage narrows from 1 July 2027, and we set out below what replaces it. The choice turns on what you do with the profit, what the asset is, who else needs an interest, and what happens at the end.
Most bad structuring decisions start with the same shorthand: companies pay 25%, trusts split income. Both halves of that are wrong more often than people expect.
Company vs trust: the four questions that actually decide it
Are you taking the profit out each year or leaving it in to fund growth? Will the main asset be sold for more than you paid? Does anyone outside the family need a fixed, defensible entitlement? And what happens at the end: a sale, a succession or a wind-up?
One gate comes first. If your income is personal services income, produced mainly from your own skills or efforts as an individual, and the personal services income rules apply, that income is attributed back to you whichever entity earns it. Consultants and one-person professional practices should settle that before anything else.
How a company is actually taxed
A company is a separate legal entity registered with ASIC, owned by shareholders and run by directors. It pays a flat rate on its own profit.
The rate is where the shorthand breaks down. The full company tax rate of 30% applies to every company that is not a base rate entity, and base rate entities pay 25%. Being a base rate entity has two limbs, not one. Aggregated turnover for the income year must be under the $50 million threshold, and no more than 80% of assessable income that year can be base rate entity passive income, which includes rent, interest, royalties, corporate distributions and franking credits, and net capital gains.
That second limb matters more than the first and almost nobody mentions it. A company holding an investment property, a share portfolio or a group’s surplus cash usually has most of its income in the passive category, so it pays 30%, not 25%. The test is applied fresh each income year, so a company that qualifies one year can fail the next simply because it sold an asset.
There is a second-order effect worth knowing before you rely on franking. The corporate tax rate for imputation purposes, the rate you frank a distribution at, is worked out by assuming this year’s turnover, assessable income and passive income match last year’s. When the mix moves, the rate you paid and the rate you can frank at can differ.
Taking money out informally is not a workaround either. Under Division 7A, a payment, loan or forgiven debt from a private company to a shareholder or their associate can be treated as a dividend, and that deemed dividend is generally unfranked. If profit is leaving, plan it as a franked dividend.
One structural limit applies no matter how well the company is run: companies cannot use the 50% CGT discount. That has been a genuine disadvantage, and it narrows from 1 July 2027, when the discount is replaced for individuals, trusts and partnerships. We cover that change in its own section below.
How a trust is actually taxed
A trust is not a separate legal entity. It is an obligation on a trustee to hold property for beneficiaries under a deed. The net income of a trust is generally taxed in the hands of the beneficiaries based on the share they are presently entitled to, whether or not the money is actually paid to them.
The consequence is the one every trust owner needs to hold on to. Where no beneficiary is presently entitled to part of the trust’s income, the trustee is taxed on it, generally at the highest marginal rate that applies to individuals. That is not a penalty for wrongdoing, it is what happens when the resolution is not made, so the trustee resolution has to be in place by 30 June and consistent with the deed.
The offsetting advantage has been significant. Where an asset has been held at least 12 months, Australian trusts can discount a capital gain by 50% and companies cannot. For an asset you expected to grow and eventually sell, that difference has often mattered more than any rate comparison above, though even with the discount a trust was never automatically the better owner.
That advantage stops accruing on 30 June 2027. For gains accruing from 1 July 2027 the discount is replaced, for individuals, trusts and partnerships alike, by cost base indexation and a 30% minimum tax rate on capital gains. Indexation gives far less relief than the discount did where the cost base is low. Growth up to 30 June 2027 is preserved, so the answer now depends on what you hold, what it cost you and when you expect to sell it. The next section sets out how that works.
We have covered how a company structure works in practice and the mechanics of a discretionary trust separately.
What changes from 1 July 2027
This is the part that changes the structuring answer, and it is now law rather than a proposal. The ATO’s guidance on reforming negative gearing and capital gains tax confirms two changes from 1 July 2027: the 50% CGT discount for individuals, trusts and partnerships is replaced by cost base indexation together with a 30% minimum tax rate on capital gains, and negative gearing for residential property investments is limited to new builds.
Four points matter if you are choosing a structure now.
Gains you have already built keep their current treatment. The CGT reforms apply only to gains accruing after 1 July 2027. Assets held across the change are deemed to be disposed of just before that date and reacquired on it, and no tax is paid on the notional gain at the time. The pre-1 July 2027 component is deferred until you actually sell, and is then worked out under the existing rules, including the 50% discount where it applies. The split is made on market value at 1 July 2027 or by a prescribed apportionment method, which is why what your assets are worth at that date matters.
Indexation is not a like-for-like swap. It lifts the cost base in line with inflation so that only the real gain is taxed, much as the regime that ran from 1985 to 1999 did. Where the cost base is low or nil, which is common for founder shares, start-up interests and internally generated goodwill, it gives considerably less relief than a 50% discount.
The minimum tax has carve-outs. It does not apply where the asset is a new residential dwelling or eligible affordable housing and the taxpayer chooses discount treatment instead of indexation, and recipients of income support payments, including the Age Pension, are exempt. The existing 60% CGT discount for eligible affordable housing is retained.
Pre-1985 assets are drawn in. The changes reach all CGT assets held by individuals, trusts and partnerships, including assets acquired before 20 September 1985. Gains on those assets arising before 1 July 2027 stay exempt.
On negative gearing, from the 2027-28 income year losses on established residential property can no longer be deducted against unrelated income such as salary or business profit. They are quarantined and carried forward, and can be used against residential property income and residential capital gains. Properties last acquired before 7:30pm AEST on 12 May 2026 are outside the new rules, as are new residential dwellings, widely held unit trusts and complying superannuation entities.
Two things do not change. The main residence exemption stays, and the four small business CGT concessions remain in place, so most small business owners can still reduce or remove the gain on a sale of an active asset. Some detail is still to come in a second tranche of legislation, including the treatment of small and start-up businesses. A separate 30% minimum tax on discretionary trust distributions was also announced in the 2026-27 Budget; it is not yet law and the detail has not been settled, but it belongs in any structuring decision made now.
The practical read: 30 June 2027 is a valuation and modelling point, not a deadline to transact by. Bringing forward a sale you would not otherwise make carries its own costs, transfer duty and lost asset protection among them.
Asset protection: what each structure really does
A company gives shareholders limited liability, which is real and valuable. It does not make the people running it untouchable. Directors carry duties including the duty to prevent insolvent trading, and have been made personally liable for company debts where they let a company trade on while insolvent. Banks and landlords also routinely ask directors for a personal guarantee, which sits outside the company entirely.
Trusts are oversold in the other direction. You will read that trust assets are beyond the reach of creditors. That is not how a trading trust works. Trustees are personally liable for the debts of the trusts they administer and are entitled to be indemnified out of the trust property, so the trust’s own trade creditors effectively reach trust assets through that indemnity. What a discretionary trust does is stop a beneficiary owning anything before the trustee exercises its discretion, putting those assets beyond the beneficiary’s personal creditors.
That distinction explains the standard structure: a corporate trustee to keep the trustee’s exposure away from any individual, and the trading business in a different entity from the assets worth protecting. Designing that separation is the substance of real asset protection, and it works far better set up early than retrofitted once a risk appears.
Income splitting through a trust, and the line the ATO draws
Distribution flexibility is the trust’s headline benefit. Each year the trustee decides who receives income within the class the deed allows, and can stream franked distributions and capital gains to the beneficiaries best placed to use them.
It has a firm limit that almost no comparison article mentions. Section 100A can apply to a reimbursement agreement, broadly where a beneficiary is made presently entitled to trust income, someone else receives the benefit, and a purpose is reducing tax. Where it applies, the trustee can be assessed instead, at the top rate. The ATO sets out how it assesses that risk in PCG 2022/2, which sorts arrangements into coloured risk zones.
The principle is simple. A distribution to an adult child who actually receives the funds and uses them for their own purposes is a different arrangement from one where the entitlement exists on paper and the money funds the parents. Distributing to family is not the problem. It has to be real and documented before year end, as our guide to family trusts and the tax benefits they offer explains.
Cost, admin and the discipline each structure demands
A company pays ASIC a registration fee and then an annual review fee for as long as it exists, and ASIC increases those fees each 1 July in line with the Consumer Price Index. One clarification, because it circulates online in the wrong form: reduced annual review fees apply to special purpose companies, and ASIC’s categories are superannuation trustee companies, home unit companies and not-for-profit companies. A company set up purely to act as trustee of a family trust pays the standard fee.
The bigger point is entity count. A trust with a corporate trustee is two entities. Add a corporate beneficiary and it is three, each with its own registrations, records and returns. The real cost of a trust is not the deed, it is the annual discipline of valid resolutions made on time.
Losses are trapped in both. A trust’s tax loss can be carried forward, but only if it satisfies the trust loss provisions in Schedule 2F, which test for changes in ownership or control and for income injection. A family trust election removes most of those tests but fixes the group you can distribute to. Either way, a loss cannot be pushed out to a beneficiary.
Where each structure genuinely wins
When a company wins
When profit stays in the business. If you are reinvesting in stock, equipment, staff or premises, a flat rate on retained profit beats pushing it out at marginal rates every year. It is also the structure outside money understands, since shareholdings are clean to issue, transfer and value. It suits higher-risk or capital-intensive trading, and it has no end date built into it. From 1 July 2027 the CGT gap that counted against it narrows, because individuals and trusts lose the 50% discount too.
When a trust wins
When profit is drawn out each year anyway, and there are genuine adult beneficiaries who actually receive their entitlements. Distribution flexibility has real value, and nothing in the 2027 changes touches it.
For succession. A trust lets control and benefit move to the next generation over time without the underlying asset having to be transferred, which a fixed shareholding cannot do as cleanly. That matters more after 1 July 2027, not less, because a direct transfer of an appreciated asset becomes a more expensive event.
For situations still in motion. If you cannot yet say who will be involved in five years, a trust keeps options open in a way a fixed shareholding does not.
On appreciating assets, the answer is now a question of timing rather than a rule. The 50% discount still applies to growth accrued up to 30 June 2027, so it continues to matter for assets already held. For growth after that date, indexation and the 30% minimum tax have to be modelled against your own cost base, holding period and exit plans before assuming a trust is the better owner.
Structuring for growth, and whether you can change later
Most established family groups do not choose. They use both: a trust or a company holding the assets, a company running the trading business, a corporate trustee, sometimes a corporate beneficiary to cap the rate on income nobody needs to draw. Which of them should hold the appreciating assets is a live question again from 1 July 2027, and one to model against your own numbers rather than assume. The enduring question is which entity holds which risk and which asset. A third option gets overlooked. Where unrelated parties go into business together and each needs a fixed entitlement, a unit trust gives fixed interests with flow-through treatment, which a discretionary trust cannot and a company does not.
Changing later is possible but not free. The small business restructure roll-over lets active assets move between entities without an income tax liability, but only where aggregated turnover is under $10 million, the transfer is a genuine restructure of an ongoing business rather than a tax-driven step, and ultimate economic ownership does not change. That last condition stops most restructures that were really about bringing someone new in. The roll-over deals with income tax; state transfer duty is answered separately under state law.
One more thing that only appears in the fine print: a trust deed specifies a vesting date, and on vesting the beneficial interests become fixed and the trustee’s discretion ends. A company has no equivalent. Worth knowing at the start if the structure is meant to last decades.
Modelling these options against your real income, risk and exit plans before anything is signed is what our business and trust structuring service is for, on the Gold Coast, elsewhere in Queensland and across Australia.
Frequently Asked Questions
Does a company always pay less tax than a trust?
No. A company pays a flat rate on profit it retains, often lower than an individual’s marginal rate. But if the profit is coming out anyway, that rate is only a deferral, because the distribution is taxed again in the shareholder’s hands with a franking credit attached. And a company holding mostly passive income is likely paying 30%, not 25%.
Can a trust own a company, or a company be a trustee?
Both, and both are common. A corporate trustee is standard in Australia because it keeps the trustee’s personal liability away from any individual and survives a change in the people involved without the trust’s assets needing to move.
Which is better for holding an investment property?
Up to 30 June 2027 the CGT discount pulls towards a trust for an asset you expect to sell at a gain, since a company cannot access it. For gains accruing from 1 July 2027 the discount is replaced for individuals and trusts by cost base indexation and a 30% minimum tax rate, so the gap narrows and the answer turns on your cost base, your holding period and when you expect to sell. Against a trust, a loss inside it stays in the trust rather than reducing your personal income. State land tax and duty rules vary and can change the answer again.
What changes for trusts and companies from 1 July 2027?
For gains accruing from 1 July 2027, the 50% CGT discount for individuals, trusts and partnerships is replaced by cost base indexation, with a 30% minimum tax rate on capital gains. Gains accrued up to 30 June 2027 keep their existing treatment, through a deemed disposal and reacquisition at that date. Negative gearing on residential property is also limited to new builds, with properties last acquired before 7:30pm AEST on 12 May 2026 unaffected. The main residence exemption and the four small business CGT concessions are unchanged.
What happens if the trustee misses the 30 June deadline?
If no beneficiary is presently entitled to part of the trust’s income by the end of the income year, the trustee is assessed on it, generally at the highest marginal rate that applies to individuals. It is the most expensive administrative mistake in trust world, and entirely avoidable.
General information disclaimer
This article contains general information only and should not be relied upon as taxation, accounting, legal, investment or financial advice. It does not take into account your personal circumstances or needs. Crest Accountants is not an AFSL holder and does not provide financial product advice. Taxation legislation, ATO guidance and corporate law change regularly, and measures described here as announced rather than legislated may change before they become law. Before establishing or restructuring an entity, seek advice from a registered tax agent, lawyer or other appropriately qualified adviser.
Not sure whether your current structure still fits the business you have now? Talk it through with Crest Accountants on 07 5538 0999, or send an enquiry through our contact form. We work with clients on the Gold Coast, throughout Queensland and across Australia.
