Company vs Trust — Which Structure for Your Business or Investments?

A company is a separate legal entity. Once registered, it exists in its own right — it can hold assets, enter contracts, borrow, employ people and sue or be sued in its own name, separately from the people who own and run it. Ownership is held through shares, and the people who run it are its directors. That separation is the defining feature of a company and flows through to almost everything else about it.

For tax, a company is taxed in its own right at a flat rate on its taxable income. For the 2026–27 income year the company rate is 25% for a base rate entity — broadly, a company with aggregated turnover under $50 million where no more than 80% of assessable income is passive income such as interest, rent and dividends — and 30% otherwise. Rates are set per income year, so always confirm the current figures before relying on them. A company does not have a tax-free threshold or sliding marginal rates the way an individual does; profit is taxed at the same rate whether the company earns a little or a lot. Profit can be retained inside the company and taxed at that flat rate, or paid out to shareholders as dividends — and where a dividend is paid from already-taxed profits it can carry franking credits, so shareholders are generally not taxed twice on the same profit.

One general point worth flagging early: a company generally cannot access the 50% capital gains tax discount that is available to individuals and trusts on assets held for more than twelve months. A company’s position on that point is unchanged by the 2026 tax reform Act, because a company never had the discount — but the position for individuals and trusts does change for CGT events happening on or after 1 July 2027, and we return to that later in this guide.

A discretionary trust — sometimes called a family trust — is a relationship rather than a legal person. A trustee holds and controls assets on behalf of a defined group of beneficiaries, under the terms of a trust deed. The trustee is often a company itself (a corporate trustee), which is why trusts and companies frequently appear together in the same structure. The word “discretionary” refers to the trustee’s discretion to decide, each year, which beneficiaries receive income and in what proportions.

For tax, a discretionary trust is generally a flow-through structure. In most cases it does not pay tax itself; instead the net income is distributed to beneficiaries each year, and those beneficiaries include the distribution in their own tax returns and are taxed at their own rates. Where trust income is not effectively distributed, it can be taxed in the trustee’s hands at a high rate, so documenting distribution decisions before year end matters.

A trust can generally pass income out to beneficiaries, but it generally cannot distribute a loss. Where a trust makes a tax loss, that loss is usually trapped inside the trust and carried forward to offset against future trust income, subject to specific trust loss rules. That is a meaningful difference from how losses behave for an individual, and it is one of the considerations covered later in this guide.

The clearest way to compare the two is to ask what happens to a dollar of profit. In a company, that dollar is taxed once at the flat company rate when it is earned. It can then sit inside the company, taxed at that flat rate, until it is paid out as a franked dividend — at which point the shareholder picks it up at their marginal rate with a credit for the company tax already paid. The company rate effectively acts as a ceiling on the tax paid while profit is retained.

In a discretionary trust, that dollar is generally not taxed at the trust level at all. Instead the trustee decides which beneficiaries receive it, and each beneficiary is taxed at their own marginal rate. Where beneficiaries have unused lower tax brackets, this streaming of income can produce a lower overall tax outcome than a flat company rate. Where every beneficiary is already on the top marginal rate — 45% for 2026–27, before the 2% Medicare levy (see our guide to the Australian tax brackets) — the flexibility delivers less, and a company’s flat rate of 25% or 30% may look more attractive for retained profit.

This is why neither structure is universally “lower tax”. A business that wants to retain and reinvest profit may favour the company’s flat rate. A family with several beneficiaries on differing incomes, or income that is intended to be drawn out each year, may favour the flexibility of a trust. In practice many structures combine both — a trust that earns the income with a company beneficiary available to cap the rate on retained amounts. These are general patterns, not recommendations; the right answer depends on your circumstances.

Asset protection is often as important as tax in choosing a structure, and the two entities approach it differently. A company contains liability within itself: because it is a separate legal person, its debts and obligations generally belong to the company rather than to its shareholders personally. That separation is not absolute — directors carry legal duties, can be personally liable in defined circumstances, and lenders frequently require personal guarantees that put personal assets back on the line.

A discretionary trust separates legal ownership from beneficial entitlement. The trustee holds the assets, while beneficiaries generally have no fixed entitlement until the trustee exercises its discretion — so an individual beneficiary typically does not “own” a defined share that a creditor can readily reach. Using a corporate trustee adds a further layer between the assets and the individuals involved. None of this is a shield against poor administration, fraud or proper claims, and it does not replace adequate insurance.

Succession works differently again. Company ownership passes through its shares, which form part of a shareholder’s estate and can be dealt with by will. A discretionary trust is controlled rather than owned, so succession turns on who controls the trustee and who holds the appointor role under the deed — control that does not automatically pass through a will. Planning who takes over control of a trust, and how, is a distinct exercise from passing shares to the next generation. This is general information, not personal advice.

Two technical differences often drive the final decision, particularly for investors: the capital gains tax discount and the treatment of losses. Both are framed here in general terms, and the CGT discount is now on a legislated timetable.

For CGT events happening before 1 July 2027, the 50% CGT discount is generally available to individuals and to trusts on a capital gain made on an asset held for more than twelve months, so when a trust sells such an asset and distributes the gain, the discount can flow through to individual beneficiaries. A company generally cannot access that discount — a company’s capital gain is generally taxed in full at the flat company rate. For an asset expected to grow in value and eventually be sold, that difference can be significant, and it has historically steered appreciating investment assets towards a trust rather than a company.

That position changes for CGT events happening on or after 1 July 2027. The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 (No. 49 of 2026) received Royal Assent on 26 June 2026 and is law. Schedule 1 commenced on 1 July 2026, but its substantive changes apply to CGT events happening on or after 1 July 2027. From that date the discount percentage for a resident individual, or for a trust that is not a complying superannuation entity, becomes 0% on ordinary assets, with cost-base indexation potentially available in its place, subject to the conditions in Division 114 — and, because assets held at 30 June 2027 are deemed reacquired at market value, indexation generally runs from 1 July 2027 rather than from the original purchase. The discount is not abolished: a complying superannuation entity keeps its 33⅓% discount, preserved rates apply for certain qualifying dwellings, and a company’s position is unchanged, because a company never had the discount. For the full provision-by-provision analysis — commencement versus application, the indexation conditions and the transitional mechanics — see our technical resource: The CGT discount changes from 1 July 2027: what the law actually says.

For the company-versus-trust decision, the practical effect is that one long-standing advantage of holding appreciating assets in a trust rather than a company narrows from 1 July 2027 — a reason to model the comparison on your own numbers and timeline rather than a rule of thumb.

Losses behave differently in each. An individual can generally use a loss against their other income, subject to the rules. A discretionary trust generally cannot distribute a loss to beneficiaries; a trust loss is usually quarantined inside the trust and carried forward against future trust income, and the trust loss rules impose tests that must be satisfied before those losses can be recouped. A company also carries its losses forward and applies its own continuity and same-business style tests before they can be used. Where early-stage losses are expected, how — and whether — those losses can ever be used is a real planning question. These are general principles only and the detailed rules are involved.

Both a company and a discretionary trust cost more to establish and maintain than operating as a sole trader, and they carry ongoing obligations that should be weighed against the benefits. A company has annual review and lodgement obligations, must keep proper registers, and lodges its own tax return. A trust must be administered in line with its deed, requires distribution decisions to be made and documented each year before year end, and lodges its own return — and where a corporate trustee is used, that trustee company must be maintained as well, so the structure effectively carries the running cost of both.

As broad patterns only: a company often suits a trading business that wants to retain and reinvest profit, that values a clear separate legal entity for contracts and liability, and where the CGT discount is not central because the entity is not holding long-term appreciating assets for eventual sale. A discretionary trust often suits a family or investment situation where income is intended to be distributed flexibly among beneficiaries each year, where the CGT treatment of long-held assets matters — bearing in mind the enacted change to the discount for CGT events from 1 July 2027 — and where the trade-off of trapped losses is acceptable. Many established structures deliberately use both together.

These are generalisations, and the right structure for you depends on your numbers, your family and risk position, your plans for the asset or business, and how income is intended to flow. We model both options against your actual figures before you decide, so the comparison reflects your situation rather than a rule of thumb. Our work is quoted as a fixed fee, scoped to your situation and quoted in writing.

Sources

• Treasury Laws Amendment (Tax Reform No. 1) Act 2026 (No. 49 of 2026) — Federal Register of Legislation. The legislative instrument defining a “new residential dwelling” had not been made at 13 July 2026.
• Company tax rates — Australian Taxation Office.
• Trusts — Australian Taxation Office.
• Business structures — business.gov.au.