Company vs Trust Australia: Choosing Your Business Structure

Deciding between a company and a trust in Australia primarily involves evaluating tax flexibility and asset protection. A company is a distinct legal entity, taxed at a fixed rate, and provides a strong shield for personal liability. In contrast, a trust is a relationship where income "flows through" to beneficiaries, offering significant tax flexibility and a different method for separating and protecting assets. The optimal choice depends entirely on your operational priorities and financial goals for the FY 2025–26 financial year.

From our observations at Baron Tax & Accounting, many Brisbane-based SMEs initially lean towards a trust for its tax distribution flexibility, but later consider a company structure as their need for profit retention and formal governance grows. Getting this foundational decision right from the start is critical. Whether you're a startup founder in Brisbane or managing a family enterprise, understanding the core differences will shape your tax obligations, asset protection strategies, and administrative workload for years to come.

This guide provides a practical comparison of proprietary limited companies and discretionary (family) trusts, focusing on the Australian regulatory framework. We will examine:

• Tax Implications: How each structure is taxed, from corporate rates to beneficiary distributions.

• Asset Protection: The effectiveness of each structure in shielding personal assets from business liabilities.

• Compliance and Costs: The setup and ongoing administrative and financial costs associated with each.

Key Differences: Company vs Trust Australia

To simplify the comparison, the table below outlines the fundamental differences between these two popular structures. This serves as a starting point to determine which entity aligns better with your financial and operational objectives. For a broader overview of all options, refer to our business structure comparison guide for Australian SMEs.

Feature	Company (Pty Ltd)	Discretionary Trust
Legal Status	A separate legal entity distinct from its owners.	A legal relationship, not a separate entity.
Taxation	Taxed at a fixed corporate rate (25% or 30%).	Income is distributed and taxed at beneficiaries' marginal rates.
Asset Protection	Strong separation of personal and business assets.	Assets are legally owned by the trustee, separating them from beneficiaries.
Profit Distribution	Through dividends to shareholders.	Flexible distributions to a range of beneficiaries.
Compliance	Regulated by ASIC with mandatory annual reporting.	Governed by the Trust Deed and state-based Trustee Acts.
CGT Discount	Not eligible for the 50% CGT discount.	Eligible for the 50% CGT discount on assets held >12 months.

Comparing Legal and Operational Frameworks

To make an informed decision in the company vs trust Australia debate, it is essential to understand that they are fundamentally different legal constructs.

A proprietary limited (Pty Ltd) company is a separate legal entity. This means the company can own property, enter into contracts, and engage in legal proceedings in its own name. It is distinct from its owners (shareholders) and managers (directors), creating a "corporate veil" that is central to its asset protection function.

A trust is a legal relationship. It is not a separate entity. A trust is an obligation placed on a person or company (the trustee) to hold assets for the benefit of others (the beneficiaries). The trustee holds legal title to the assets, while the beneficiaries have an equitable interest.

Who is in Control? Ownership and Management

The structure of ownership and control differs significantly between a company and a trust, impacting daily operations and long-term strategy.

In a company, the structure is clear. Shareholders own the company, with their ownership represented by shares. Day-to-day management is the responsibility of the directors, who are appointed to run the business and have a fiduciary duty to act in the company's best interests.

In a discretionary trust, the concept of "ownership" is more nuanced. Beneficiaries do not legally own the trust assets; they have a right to be considered by the trustee for distributions of income or capital. The trustee holds decision-making power, guided by the rules in the Trust Deed. Often, an appointor holds the ultimate power to appoint or remove the trustee.

Visualising the Structures

A text-based diagram can help clarify these power structures.

Company (Pty Ltd) Structure:

Shareholders (Owners)
     │
     └──> Appoint Directors
             │
             └──> Manage the Company
                     │
                     └──> Operates Business / Holds Assets
                             │
                             └──> Distributes Profits (Dividends) to Shareholders

Discretionary Trust Structure:

Appointor
     │
     └──> Appoints/Removes Trustee
             │
             └──> Trustee (Legal Owner)
                     │
                     └──> Holds Assets / Operates Business
                             │
                             └──> Distributes Income/Capital to Beneficiaries

These diagrams highlight the linear control flow in a company versus the layered, relationship-driven structure of a trust.

Tax Obligations and Financial Strategy

Taxation is a primary differentiator when comparing a company versus a trust. Each structure interacts with the Australian tax system differently, creating distinct opportunities and risks. A company is taxed as a separate entity on its profits, while a trust acts as a conduit, with income flowing through to its beneficiaries.

Taxation Models: Company vs Trust

A company's tax treatment is straightforward. It earns a profit and pays tax on that profit at a fixed corporate rate. For the FY 2025–26, the rate is 30%, or a lower rate of 25% for businesses that qualify as a "base rate entity." After-tax profits can be retained within the company to fund growth. When profits are distributed to shareholders, they are paid as dividends, which can be "franked" to pass on a credit for the tax already paid by the company, preventing double taxation.

Discretionary trusts operate as "flow-through" structures. The trust itself generally does not pay tax. Instead, it must distribute its net income to its beneficiaries annually. The beneficiaries then report this income in their personal tax returns and pay tax at their individual marginal rates. This flexibility is particularly advantageous for family groups.

Capital Gains Tax (CGT): A Critical Distinction

Capital Gains Tax is a significant factor for entities holding assets expected to appreciate in value, such as property or shares.

Individuals and trusts that sell an asset held for more than 12 months can generally access the 50% CGT discount, which halves the taxable capital gain.

Companies are not eligible for the 50% CGT discount. A company pays tax on the full capital gain at its corporate tax rate. While certain small business CGT concessions may be available to both structures, the absence of the general 50% discount is a major strategic disadvantage for holding long-term growth assets within a company.

Key Compliance Risks

Both structures have specific compliance risks enforced by the ATO.

• For Companies: Division 7A Division 7A of the tax act prevents shareholders or their associates from taking money from a private company tax-free as purported "loans." If a payment or loan is made without a compliant Division 7A loan agreement, the ATO can deem the amount an unfranked dividend, making it taxable income for the recipient at their marginal rate.

• For Trusts: Trust Loss Rules Trusts are subject to complex trust loss rules that can prevent them from using prior-year losses to offset current-year income. To carry forward and utilise losses, a trust must satisfy strict tests, such as the income injection test or control test, which can be easily failed if there are changes in who controls or benefits from the trust.

Evaluating Asset Protection and Liability

A primary driver for selecting a business structure is asset protection. The core question is whether personal assets, such as the family home, are at risk if the business encounters financial difficulty.

A company offers protection via the "corporate veil." As a separate legal entity, a company is responsible for its own debts. This creates a legal barrier between the business's liabilities and the personal assets of directors and shareholders. If the company fails, creditors can generally only pursue the company's assets. However, this protection can be compromised if directors provide personal guarantees for business loans or engage in misconduct like insolvent trading.

The Trust Approach to Asset Separation

A discretionary trust achieves asset protection through the separation of legal and beneficial ownership. The trustee is the legal owner of the trust's assets, holding them for the benefit of the beneficiaries. Crucially, the beneficiaries do not have a fixed entitlement or legal ownership of any specific trust asset.

This distinction is powerful. If a beneficiary faces personal financial hardship or litigation, their creditors generally cannot access assets held within the trust because the beneficiary does not legally own them. This is why many families in Brisbane and across Australia use discretionary trusts to hold significant assets. You can learn more in our guide to discretionary trusts for asset protection.

Director Duties vs Trustee Duties

The individuals managing each structure have different legal responsibilities and personal risks.

Aspect	Company Director	Trustee of a Trust
Primary Duty	To act in the best interests of the company.	To act in the best interests of the beneficiaries, in accordance with the Trust Deed.
Governing Rules	Corporations Act 2001 and the company's constitution.	The Trust Deed and state-based Trustee Acts.
Personal Liability	Personally liable for debts from insolvent trading or breaches of director's duties.	Personally liable for debts incurred on behalf of the trust, but can be indemnified from trust assets.
Decision Making	Must exercise care, skill, and diligence.	Must adhere strictly to powers granted in the Trust Deed and avoid conflicts of interest.

Compliance, Governance, and Costs

The ongoing administrative burden and costs are practical considerations that differ significantly between companies and trusts.

A proprietary limited company is regulated by the Australian Securities and Investments Commission (ASIC). This involves a formal compliance schedule. Directors must lodge an annual company statement, pass a solvency resolution, and maintain detailed financial records. These are legal obligations with significant penalties for non-compliance.

A discretionary trust is governed more privately by its trust deed. While trustees have legal duties under state-based Trustee Acts, there is no equivalent to ASIC's annual review process. The primary compliance focus is ensuring all decisions, particularly the annual income distribution, are made and documented in strict accordance with the deed.

Establishment and Ongoing Costs

The financial costs to set up and maintain each structure also vary. These figures are indicative and depend on the complexity of the arrangement.

Cost Component	Company (Pty Ltd)	Discretionary Trust
Initial Setup	ASIC registration fee (approx. $611), plus legal/accounting fees for the constitution.	Legal fees for a custom Trust Deed, which can be higher for complex arrangements.
Annual ASIC Fee	Mandatory annual review fee (approx. $329 for a standard proprietary company).	$0 (unless a corporate trustee is used, which has its own ASIC fee).
Annual Compliance	Costs for preparing financial statements, a company tax return, and ASIC solvency resolutions.	Costs for preparing financial statements, a trust tax return, and trustee distribution minutes.

A company's costs are generally more predictable. A trust's annual fees can appear lower, but it requires meticulous internal management to remain compliant and effective, which often involves professional fees.

Decision Framework: Which Structure is Right for You?

Choosing the correct structure requires matching a legal framework to your specific goals. A structure suitable for a high-growth startup may not be appropriate for a family-run business in Brisbane focused on succession planning.

Scenario 1: The High-Growth Startup

A Brisbane-based tech startup plans to reinvest all profits for several years and eventually seek venture capital.

• Best Structure: Company (Pty Ltd).

• Reasoning: The fixed corporate tax rate is ideal for retaining and reinvesting profits to fuel growth. A defined share structure simplifies the process of issuing equity to founders, employees, and investors. The trust's obligation to distribute income annually is unsuitable for this reinvestment strategy.

Scenario 2: The Family Business

A family-owned business aims to distribute profits among several family members with varying income levels and protect assets for the next generation.

• Best Structure: Discretionary Trust.

• Reasoning: Its primary advantage is the flexibility to stream income to different beneficiaries each year, allowing the family to optimise its overall tax position. The trust also provides robust asset protection, shielding the business from the personal financial issues of any individual family member.

Scenario 3: The Property Investor

An investor is building a property portfolio with a long-term buy-and-hold strategy, focusing on capital growth.

• Best Structure: Discretionary Trust.

• Reasoning: The critical factor is access to the 50% Capital Gains Tax (CGT) discount upon the eventual sale of a property held for over 12 months. This significant tax concession is not available to companies, making a trust a more tax-effective vehicle for holding appreciating assets.

Summary

When choosing between a company and a trust, consider the following key points:

• Key Compliance Requirements: * Company: Annual ASIC review, solvency resolution, compliance with the Corporations Act 2001, and adherence to Division 7A rules. * Trust: Adherence to the Trust Deed, annual trustee resolutions for income distribution, and management of trust loss rules.

• Risk Areas: * Company: Director liability for insolvent trading and personal guarantees can pierce the corporate veil. Division 7A breaches can lead to significant tax penalties. * Trust: A poorly drafted Trust Deed or improper administration can invalidate asset protection and tax benefits. Personal liability for an individual trustee can be a major risk.

• Brisbane-Relevant Considerations: * For Brisbane-based businesses planning for intergenerational wealth transfer or holding significant property assets, a discretionary trust often provides superior flexibility and tax outcomes regarding CGT. * For startups aiming to tap into Brisbane's growing tech and investment scene, a company structure is standard and provides the necessary framework for capital raising.

Educational Closing

The information provided in this guide is general in nature and does not constitute financial or legal advice. The choice between a company and a trust has significant long-term implications for tax, asset protection, and succession planning. Your optimal structure will depend on your unique personal and business circumstances.

It is strongly recommended that you seek professional advice from a qualified accountant and lawyer to analyse your specific situation before making a decision. They can help you understand the nuances of each structure and ensure your choice aligns with your long-term financial objectives.

For further official information, you can consult the following government resources:

• Australian Business Register (ABR) - Choosing your business structure

• ASIC - Steps to register a company

Frequently Asked Questions

Can I change from a trust to a company later on?

Yes, but it is a complex and potentially costly process. Transferring assets from a trust to a company is treated as a disposal, which can trigger Capital Gains Tax (CGT) and stamp duty. While some CGT rollover relief provisions may be available, they have strict eligibility criteria. This process is effectively a restructure and should be planned carefully with professional advice.

Which structure is better for a Brisbane family business?

For most family businesses, a discretionary trust is often the preferred starting point due to its income-splitting flexibility, which helps manage the family's overall tax burden. However, if the business's primary goal is rapid expansion through profit reinvestment, a company's lower, flat tax rate on retained earnings can be more advantageous.

Is a company cheaper to run than a trust?

A company typically has more predictable, though not necessarily lower, running costs. It incurs a mandatory annual review fee payable to ASIC (approximately $329). A trust does not have this fee, but it requires diligent administration, including annual trustee resolutions and careful distribution planning, which often necessitates professional accounting and legal fees that can exceed the ASIC fee.

Can a company be a trustee for a trust?

Yes, and this is highly recommended. Using a corporate trustee (a company established solely to act as trustee) is a standard asset protection strategy. It limits the liability for trust debts to the assets of the trustee company, which are typically minimal, thereby protecting the personal assets of the individuals in control. It also simplifies succession, as control can be passed by changing the directors of the company rather than amending the trust deed.

Baron Tax & Accounting Website: https://www.baronaccounting.com Email: info@baronaccounting.com Phone: +61 1300 087 213 Whatsapp: 0450 468 318