Choosing between a trust and a company is one of the most common structure decisions for Australian business owners.
Both structures can be useful. Both can help separate business activities from personal affairs. Both can work for small businesses, family businesses and growing businesses. But they are not the same.
A company is usually simpler to understand and better suited to retained profits, growth and external investment. A trust can offer more flexibility around income distribution and family planning, but it is usually more complex to set up and manage.
The right structure depends on your tax position, business risk, family situation, cash flow, future plans and whether profits will be paid out or retained in the business.
At GSD Tax & Business Advisory, we help business owners choose and set up structures that are practical, tax-effective and suitable for long-term growth.
Quick answer: trust vs company
A company is often better when you want a clear trading entity, retained profits, a simple ownership structure and room to grow.
A trust is often better when family income distribution, asset protection planning and flexibility are important.
| Question | Company | Trust |
|---|---|---|
| Is it a separate legal entity? | Yes | No, the trustee acts for the trust |
| Who controls it? | Directors | Trustee |
| Who owns it? | Shareholders | The trust is set up for beneficiaries |
| Who pays tax? | The company | Usually beneficiaries, depending on distributions |
| Is it easy to understand? | Usually easier | Usually more complex |
| Can profits be retained? | Yes, commonly | Possible, but can create tax issues |
| Can income be distributed flexibly? | Limited | Often yes, depending on the deed |
| Is it good for family businesses? | Sometimes | Often, depending on circumstances |
| Is it good for investors? | Often better | Usually less suitable |
| Is it more expensive to maintain? | Medium | Usually higher |
| Does it provide asset protection? | Some protection, but not complete | Can assist, especially with a corporate trustee |
What is a company?
A company is a separate legal entity. It can own assets, enter into contracts, employ staff, borrow money, sue and be sued. A company is owned by shareholders and controlled by directors.
For most small businesses, the common company type is a proprietary limited company, usually shown as "Pty Ltd".
When a company may suit
- the business has commercial or legal risk
- you want a clear trading structure
- profits may be retained in the business
- you may employ staff
- you want to bring in shareholders later
- you want a structure that is easier for banks, suppliers and investors to understand
- you want ownership to be clearly shown through shares
- you want the business to continue even if ownership changes
Advantages of a company
- a separate legal entity
- limited liability for shareholders, subject to important exceptions
- a clear ownership structure
- the ability to retain profits
- easier access to capital or investors
- a recognised structure for lenders and suppliers
- continuity if shareholders or directors change
- a simpler structure than a trust for many trading businesses
Disadvantages of a company
- setup costs
- ASIC registration and annual review obligations
- director duties
- separate tax return requirements
- less flexibility in distributing profits
- money in the company is not automatically personal money
- extracting profits can create tax consequences
- directors can still be personally exposed in some situations
A company does not provide complete asset protection. Personal guarantees, tax debts, director penalty notices, insolvent trading and poor conduct can still create personal risk.
Company tax treatment
A company pays tax on its own profits.
For many small business companies that qualify as base rate entities, the company tax rate is 25%. Other companies may be taxed at 30%.
This does not automatically mean the owner pays less tax overall. If profits are later paid out as wages, dividends, director fees or other payments, there may be further tax consequences for the owner.
A company structure can work well when profits are retained in the business for working capital, growth, equipment, staff, debt reduction or future investment.
What is a trust?
A trust is a structure where a trustee carries on business or holds assets for the benefit of beneficiaries.
The trustee can be an individual or a company. In many business structures, a company acts as trustee. This is commonly called a corporate trustee.
A discretionary family trust is one of the most common trust structures used by family businesses in Australia.
When a trust may suit
- the business is family owned
- income distribution flexibility is important
- asset protection planning is part of the strategy
- profits may be distributed to different family members or entities
- the business owner wants flexibility for future planning
- succession planning matters
- the structure is part of a broader family wealth plan
Advantages of a trust
- flexible income distribution, depending on the trust deed
- family tax planning opportunities
- asset protection planning
- succession planning flexibility
- the ability to separate control and benefit
- a structure that may work well with a corporate trustee
- flexibility for family-owned businesses and investment structures
Disadvantages of a trust
- higher setup costs
- higher annual accounting costs
- the need for a properly drafted trust deed
- formal yearly trustee resolutions
- complex tax rules
- trust losses are generally trapped in the trust
- distributions must be correctly documented
- the trust deed controls what can and cannot be done
- changes can be difficult once the trust is established
- lenders and investors may find the structure more complex
A trust should not be used just because someone says it "saves tax". It needs to suit the business, the family group and the long-term plan.
Trust tax treatment
A trust generally lodges its own tax return.
In many cases, beneficiaries pay tax on their share of trust income. If income is not properly distributed, the trustee may be taxed at a higher rate.
The tax outcome depends on the trust deed, the beneficiaries, the type of income, the timing of distributions and the way the trust is administered.
Trusts need careful year-end planning. Trustee resolutions should be prepared before the required deadline and must be consistent with the trust deed.
Important update: discretionary trust tax changes from 2028
Business owners using, or considering, discretionary trusts should be aware of announced tax changes.
The 2026-27 Budget announced that a minimum 30% tax will apply to discretionary trusts from 1 July 2028. Rollover relief is expected to be available for three years from 1 July 2027 for eligible businesses that want to restructure from a discretionary trust to another business structure.
This does not mean trusts are automatically unsuitable. It does mean the structure should be reviewed carefully before setting up a new discretionary trust or continuing to trade through an existing one.
If you already operate through a discretionary trust, now is a good time to review whether the structure still suits your business.
Trust vs company for tax
A company and a trust are taxed differently.
A company pays tax on its profits. The company can retain after-tax profits, but owners may pay further tax when profits are extracted.
A trust usually distributes income to beneficiaries, who then pay tax based on their own tax position. This can provide flexibility, but only where the trust deed and tax rules allow it.
| Tax issue | Company | Trust |
|---|---|---|
| Taxpayer | Company | Usually beneficiaries, depending on distributions |
| Retaining profits | Usually simpler | Can be less tax-effective |
| Income splitting | Limited | More flexible, subject to rules |
| Losses | Can usually be carried forward if rules are met | Generally trapped in the trust |
| Dividends | Can pay franked dividends | Does not pay dividends |
| Year-end planning | Important | Very important |
| Complexity | Medium | Higher |
The best tax outcome depends on the numbers. Profit level, family income, cash flow needs, PSI rules, Division 7A, retained earnings and future sale plans all matter.
Trust vs company for asset protection
Both structures can assist with asset protection, but neither gives complete protection.
A company can separate the business from the individual owners. However, directors may still be exposed through personal guarantees, director penalty notices, insolvent trading or breach of duties.
A trust can assist with asset protection because assets may be held for beneficiaries rather than personally by the business owner. However, the trustee is legally responsible for trust activities. If the trustee is an individual, that person may be exposed. For this reason, many business owners use a corporate trustee.
Asset protection needs legal and tax advice together. A structure alone will not fix poor contracts, unpaid tax, weak insurance or personal guarantees.
Trust vs company for profit distribution
A company distributes profits mainly through wages, dividends, director fees or other payments.
A trust may allow income to be distributed to different beneficiaries, depending on the trust deed and tax rules.
This flexibility can be useful for family businesses, but it must be managed carefully.
Distributions should be commercially sensible, documented properly and reviewed each year.
Trust vs company for growth
A company is often better for growth where:
- the business wants to retain profits
- investors may come in later
- ownership needs to be clear
- shares may be issued
- profits will be reinvested
- the business may be sold in the future
A trust may be better where:
- the business is family owned
- the ownership group is unlikely to change
- income distribution flexibility matters
- asset protection planning is important
- the business is part of a broader family wealth plan
If external investors are likely, a company is usually easier to work with.
Trust vs company for family businesses
A discretionary family trust can be useful for family businesses because it may provide flexibility in how income is distributed.
However, this only works properly when:
- the trust deed is suitable
- beneficiaries are correctly identified
- distributions are documented on time
- family members understand their tax position
- unpaid present entitlements are managed properly
- the structure is reviewed as the business grows
A company can also work well for family businesses, especially where profits are retained or ownership needs to be simple.
For many family groups, the answer is not simply "trust or company". It may be a company acting as trustee of a family trust, or a company owned by a trust. The structure should be designed around the actual business.
Should you use a company as trustee of a trust?
Many business owners use a corporate trustee instead of an individual trustee.
A corporate trustee may help separate trust activities from personal affairs and can make administration cleaner.
However, it also adds:
- company setup costs
- ASIC annual review fees
- company record keeping
- director obligations
- extra accounting and compliance work
A corporate trustee is common, but it should still be chosen for a reason.
Common mistakes when choosing between a trust and company
1. Choosing a trust only for tax reasons
A trust can provide flexibility, but it is not a magic tax-saving structure.
2. Choosing a company and assuming assets are fully protected
A company helps separate business and personal affairs, but directors can still be personally exposed.
3. Ignoring how profits will be used
If profits will be retained in the business, a company may be more practical. If profits will be distributed across a family group, a trust may be worth considering.
4. Using an individual trustee without understanding the risk
An individual trustee can expose the person acting as trustee. A corporate trustee may be more suitable in many business cases.
5. Not reviewing the structure after the business grows
A structure that worked at the start may not be right once the business has staff, debt, higher profits or valuable assets.
6. Forgetting about future sale plans
The structure can affect how a business sale is handled. CGT, small business concessions, retained profits and ownership issues should be considered early.
7. Not considering the announced trust tax changes
Discretionary trust tax changes from 2028 may affect future planning. Existing trust structures should be reviewed before the changes apply.
How to choose between a trust and company
Before choosing, ask:
- Who will own the business?
- Who will control the business?
- Will profits be retained or distributed?
- Is the business family owned?
- Will the business bring in investors?
- Will the business employ staff?
- Is asset protection a major concern?
- Are personal guarantees likely?
- Is income mainly from personal services?
- Are there family members who may receive distributions?
- Will the business hold valuable assets?
- Is the structure part of a long-term wealth plan?
- Could the business be sold in the future?
- What are the setup and annual compliance costs?
- How will the announced discretionary trust tax changes affect the decision?
The right answer depends on the full picture.
Simple examples
Example 1: Growing service business
A business owner runs a profitable service business, employs staff and wants to retain profits for growth.
A company may be suitable because it provides a clear trading structure and can retain profits more easily.
Example 2: Family trade business
A family runs a trade business and wants flexibility to distribute income within the family group.
A discretionary trust with a corporate trustee may be suitable, depending on the trust deed, family income and business risk.
Example 3: Startup seeking investors
A startup plans to raise capital and issue shares to investors.
A company is usually more suitable because investors generally prefer clear share ownership.
Example 4: Existing trust with growing profits
A business has traded through a family trust for years and now has higher profits, staff and business assets.
The structure should be reviewed, especially with the announced discretionary trust tax changes from 2028.
When a company may be the better choice
A company may be better if:
- you want to retain profits
- you may bring in investors
- you want a clearer ownership structure
- the business has staff
- the business has higher commercial risk
- you want a structure lenders and suppliers easily understand
- you are building a business for sale
- family distribution flexibility is not a major issue
When a trust may be the better choice
A trust may be better if:
- the business is family owned
- income distribution flexibility is important
- asset protection planning matters
- the structure is part of a family wealth plan
- ownership is unlikely to change
- the business will not need external investors
- the trust deed is suitable and properly maintained
Can you change from a trust to a company later?
Yes, but it must be planned carefully.
Changing from a trust to a company may involve:
- tax consequences
- CGT issues
- GST issues
- stamp duty issues
- asset transfers
- contract updates
- finance and loan changes
- new ABN and tax registrations
- payroll and software changes
- business name updates
- customer and supplier notifications
The announced rollover relief from 1 July 2027 may help eligible businesses restructure from a discretionary trust to another structure, but advice should be obtained before making any change.
How GSD Tax & Business Advisory can help
Choosing between a trust and company is not just a setup decision. It affects tax, asset protection, profit extraction, family planning and future growth.
At GSD Tax & Business Advisory, we help business owners across Australia understand the options and choose a structure that suits their situation.
We can help with:
- trust vs company advice
- company setup
- family trust setup
- corporate trustee setup
- ABN, GST and PAYG registrations
- ASIC compliance
- tax planning
- business restructuring
- reviewing existing trust structures
- preparing for announced trust tax changes
- ongoing accounting and tax compliance
Need help choosing between a trust and company?
If you are starting a business, restructuring an existing business or reviewing an old family trust, get advice before making the decision. GSD Tax & Business Advisory can help you compare the options and choose a structure that works for your tax position, business risk and long-term plans.
Book a Structure Consultation