Trust vs Company in Australia: Which Structure Is Right for You?

The trust versus company decision is one of the most consequential structure choices an Australian business owner or investor will make — and one of the most misunderstood. Both structures offer genuine tax advantages and meaningful asset protection.

But they do it in fundamentally different ways, and the one that works better depends entirely on what you’re trying to achieve. This guide compares them directly so you can walk away with a clear picture of which suits your situation.

Trust vs Company: The Fundamental Legal Difference

A Pty Ltd company is a separate legal entity. It can own assets, enter contracts, and be sued in its own name — independently of its directors and shareholders. The company is its own legal person under the Corporations Act 2001.

A trust is not a legal entity. It is a legal relationship — an obligation imposed on a trustee (a person or company) to hold and manage assets for the benefit of a group of people called beneficiaries. The trust itself cannot own property; the trustee holds legal title to the assets but must deal with them according to the terms of the trust deed.

This distinction — entity versus relationship — shapes everything: how tax is calculated, how assets are protected, how income is distributed, and how the structure can be exited or transferred.

The most common type of trust used in Australian business and family wealth planning is the discretionary trust, often called a family trust. In a discretionary trust, the trustee has full discretion each financial year to decide which beneficiaries receive income and how much. This flexibility is its primary tax advantage.

Trust vs Company: Side-by-Side Comparison

Here is how the two structures compare across the factors that matter most:

Note: The above set up costs are exclusive of the accountant fees. Ensure to always confrim this beforehand.

Tax: How Each Structure Is Taxed

This is where the structures diverge most sharply — and where the decision becomes a numbers question.

A Pty Ltd company pays a flat 25% corporate tax rate on its profits, provided its aggregated annual turnover is under $50 million. This rate applies regardless of how much profit the company makes or who its owners are. Profits retained in the company are taxed at 25% and can be reinvested for growth.

When profits are eventually distributed to shareholders as dividends, those dividends carry franking credits representing the tax the company has already paid — preventing double taxation.

A discretionary trust does not pay income tax itself. Instead, the trustee makes an annual resolution — which must be done before 30 June — distributing the trust’s net income to beneficiaries. Each beneficiary then pays tax on their allocated share at their own personal marginal rate.

This is where the income-splitting advantage comes in: a trustee can allocate income to family members in lower tax brackets (a spouse on part-time income, adult children at university, or other family beneficiaries) to minimise the total tax paid by the family group.

The critical compliance risk is this: as the ATO confirms, if a trust fails to distribute all its net income to beneficiaries by 30 June, the trustee is taxed on the undistributed amount at the top marginal rate — currently 47% including the Medicare Levy. Trustees who miss this deadline face a punitive tax outcome that eliminates any benefit the structure was providing.

The practical implication: a company is better for retaining profits and funding growth at a lower rate. A trust is better for distributing income flexibly across a family group and minimising total tax year by year — but only when it is actively managed.

Capital Gains Tax: The Trust’s Hidden Advantage

One of the most significant and frequently overlooked differences between trusts and companies is access to the 50% Capital Gains Tax (CGT) discount.

When an individual or a discretionary trust sells an asset that has been held for more than 12 months, the capital gain can be reduced by 50% before tax is applied. If a trust sells a property that generates a $400,000 capital gain, the trustee can distribute that gain to individual beneficiaries with the 50% discount applied — meaning each beneficiary is taxed on only $200,000 of gain, at their personal marginal rate.

Companies do not have access to the 50% CGT discount. A company that sells an asset with a $400,000 gain pays 25% on the full $400,000 — a tax bill of $100,000, compared to significantly less through a trust distributing to low-tax beneficiaries.

This is the primary reason why property investors, business owners with significant appreciating assets, and family wealth structures often favour a trust — particularly when the long-term plan involves selling the business or liquidating investments. If asset sales are likely to be a feature of your business model, the CGT discount alone can justify the trust structure.

Asset Protection: Two Different Approaches

Both structures offer meaningful asset protection — but they do it differently and the protection isn’t identical.

A company creates a liability shield between the business and its owners. The company can be sued, but in most circumstances, the directors’ and shareholders’ personal assets are protected. The key exceptions — and they are important — include insolvent trading, Director Penalty Notices issued by the ATO for unpaid PAYG withholding or superannuation guarantee charges, personal guarantees given to lenders, and breaches of directors’ duties.

In practice, many business owners running companies are asked to provide personal guarantees by banks and landlords, which can neutralise the liability protection for those specific obligations.

A discretionary trust with a corporate trustee delivers a different form of protection. Because assets are held by the trustee — not by individual beneficiaries — those assets are generally protected from the personal creditors of any beneficiary.

If a beneficiary goes bankrupt or is sued personally, their creditors typically cannot access assets sitting inside the trust. This makes the trust particularly effective for holding long-term wealth, property, and business assets separate from trading risk.

The gold standard in Australian business structuring is a discretionary trust with a corporate trustee — a company established solely to act as trustee of the trust. The corporate trustee holds assets in its capacity as trustee (not beneficially), meaning it has no assets of its own that creditors can pursue. This combines the asset segregation of the trust with the limited liability of a company in the trustee role.

What Is a Corporate Trustee and Why Does It Matter?

A corporate trustee is a company that acts as the trustee of a trust — holding and managing the trust’s assets on behalf of the beneficiaries, but not trading or owning assets in its own right.

Using a corporate trustee rather than an individual trustee offers several practical advantages:

• If an individual trustee dies, goes bankrupt, or becomes incapacitated, the trust can be thrown into legal uncertainty. A company has perpetual succession — it continues regardless of changes to its directors or shareholders, making trustee succession seamless
• A corporate trustee keeps the trust’s assets clearly separated from any individual’s personal affairs — strengthening the asset protection the trust provides
• A company as trustee can be more easily transferred or restructured than an individual’s role, and it removes the risk of a trustee’s personal creditors making claims over trust assets
• The corporate trustee company does not need its own ABN, TFN, or bank account, because it does not trade in its own right — the trust itself has those registrations

In practice, virtually all professionally structured family trusts in Australia use a corporate trustee. The additional cost of maintaining the corporate trustee company — primarily the annual ASIC review fee — is modest relative to the protection and succession benefits it provides.

Division 7A: A Risk Unique to Companies

One compliance risk that exists for companies but not trusts is Division 7A of the Income Tax Assessment Act 1936. This is a set of ATO rules designed to prevent shareholders or their associates from accessing company profits informally — through loans, payments, or debt forgiveness — without paying tax on those amounts.

If a company director or shareholder takes money from the company informally — even as what they intend to be a temporary loan — and that arrangement is not structured as a compliant loan agreement with the benchmark interest rate and a set repayment schedule, the ATO can treat the payment as an unfranked deemed dividend. That amount is then taxed at the recipient’s full marginal rate without any franking credits to offset it.

Division 7A catches more business owners than most realise, particularly in closely held family companies where the line between company funds and personal funds can blur. Managing it requires disciplined record-keeping and structuring of any withdrawals. A trust does not face this issue because there is no concept of a shareholder ‘loan’ from a trust — distributions are made by trustee resolution to named beneficiaries.

When a Trust Structure Makes More Sense

A discretionary trust is typically the better choice when:

• You have multiple family members who can be beneficiaries, and income splitting across different tax brackets will generate material tax savings
• You are holding or planning to sell appreciating assets (property, business interests) and want to access the 50% CGT discount through individual beneficiaries
• Your primary goal is long-term wealth protection and intergenerational transfer rather than active trading
• You want maximum flexibility in how and to whom income is distributed each year

When a Company Structure Makes More Sense

A Pty Ltd company is typically the better choice when:

• You need to retain significant profits in the business at the 25% corporate rate for reinvestment and growth
• You want to bring in external investors or issue shares to partners — trusts are not designed for this
• You are operating an active trading business with significant contract or liability exposure where the corporate veil provides a clear practical benefit
• You are planning to eventually sell the business via a share sale — buyers typically prefer purchasing a company
• Your business structure needs to be simple to explain to banks, clients, and government bodies

Trust Plus Company: The Combined Structure

Many Australian businesses use both structures in combination — a discretionary trust owns the shares in a Pty Ltd company, or a company acts as trustee of a trust that holds the business assets. This layered approach can capture the tax flexibility of the trust while maintaining the trading credibility and liability protection of the company.

These structures are more complex to set up and maintain, and they are not appropriate for every situation. But for established businesses generating meaningful profits with real asset protection and succession planning needs, the combined structure often delivers outcomes that neither a trust nor a company alone can match.

For a broader overview of all company types available in Australia, see our guide on types of companies in Australia. For those still deciding between a sole trader and a company before considering a trust, our sole trader vs company guide covers the foundational comparison.

Frequently Asked Questions

Is a family trust better than a company in Australia?

It depends on your goals. A family trust is typically better for income splitting across beneficiaries with different tax rates, accessing the 50% CGT discount on asset sales, and long-term wealth protection. A company is better for retaining profits at the flat 25% corporate rate, bringing in investors, and operating an active trading business where the corporate structure provides credibility and liability separation. Many established businesses use both in combination.

What is a corporate trustee company in Australia?

A corporate trustee is a company established specifically to act as the trustee of a trust. It holds the trust’s assets in its capacity as trustee — not beneficially — meaning it has no assets of its own. It does not trade, does not need its own ABN or TFN, and does not lodge tax returns. Using a corporate trustee rather than an individual trustee provides better succession planning (the company continues regardless of personnel changes) and stronger asset protection, because the trust’s assets are clearly separated from any individual’s personal affairs.

Do trusts pay tax in Australia?

A discretionary trust does not pay income tax if it distributes all its net income to beneficiaries before 30 June each year. Each beneficiary then pays tax on their allocated share at their own personal marginal rate. If the trust fails to distribute all its net income by 30 June, the trustee is taxed on the undistributed amount at the top marginal rate of 47% (including Medicare Levy) — a punitive outcome designed to enforce the trust’s pass-through nature.

Can a company get the 50% CGT discount in Australia?

No. The 50% Capital Gains Tax discount — which reduces a taxable capital gain by half for assets held longer than 12 months — is not available to companies. It is available to individuals, superannuation funds (at a 33.33% discount rate), and discretionary trusts that distribute capital gains to individual beneficiaries. This is one of the primary reasons investors and business owners holding appreciating assets often favour a trust structure over a company.