Family Trust, Company or Both? How to Structure Your Family’s Business

Updated 26 July 2026

By Mike Wilczynski, Chartered Accountant

The four structures, compared

Why the family trust is the default for trading family businesses

Income flexibility. Each year, before 30 June, the trustee resolves who receives the trust's income. A year where one spouse earns less, or an adult child is at university, changes the optimal split; a trust lets you follow it. A company cannot re-point its profits this way.

The CGT discount. When you eventually sell the business or its premises, a trust passes the 50% discount through to individual beneficiaries. A company gets no discount at all: a $1m gain in a company wears tax on the full $1m, and getting the cash out costs more tax again. For any structure that will one day hold a valuable, saleable asset, this single point often decides it; the same discount logic drives property CGT planning.

Asset protection. With a corporate trustee, no individual owns the business assets. Paired with the strategies in our asset protection guide, the family home and passive investments sit outside the trading risk.

The limits. Trusts cannot distribute losses, they must distribute all income each year or the trustee pays 45% on what is left, and distributions to minors are penalised above a small threshold. Distributions to adult beneficiaries who never see the money are squarely in the ATO's section 100A sights; the days of paper distributions to low-income relatives are over.

Where a company wins

• You retain profits to reinvest. A company caps tax at 25% for base rate entities, and the balance stays in the business. In a trust, everything is distributed and taxed at beneficiary rates yearly.
• Outside investors or employee equity. Shares are divisible and transferable in a way trust interests are not.
• High, stable profits beyond the family's low brackets. Once every realistic beneficiary is in the 37-45% bands, the trust's splitting advantage fades and the flat 25% looks better.

The hybrid most family businesses end up with

A discretionary trust trading the business, with a bucket company as one of its beneficiaries. Profits are split to family members up to their efficient brackets, and the remainder is distributed to the company and capped at 25% (or 30%).

Two warnings that come with the hybrid:

1. Bendel changed the UPE rules, but not the discipline. Until June 2026 the ATO treated an unpaid distribution to a bucket company as a Division 7A loan. The High Court rejected that in Commissioner of Taxation v Bendel [2026] HCA 18: a UPE is not, of itself, a loan. That removes the automatic complying-loan-agreement obligation for new entitlements, but s100A and Subdivision EA still apply where the retained funds flow back to the family without commercial substance, groups with existing loan agreements should wait for the ATO's Decision Impact Statement before unwinding anything, and where funds are actually lent from the company the ordinary Division 7A rules (benchmark rate 8.37% for 2025-26, 8.77% for 2026-27) apply as ever. See our Division 7A guide for the full post-Bendel position.
2. The goalposts are moving on trusts generally. The 2026-27 Budget proposed a 30% minimum tax on discretionary trust income from 1 July 2028. Structures built purely to bank the gap between low family brackets and the company rate should be stress-tested against that horizon; structures built for asset protection, flexibility and CGT outcomes still stack up.

"Can my salary be paid into a family trust?"

No, not if you are an employee. Salary and wages are personal services income taxed to the person who earned them. Redirecting your employment income into a trust does not move the tax; the PSI rules and the general anti-avoidance provisions attribute it straight back to you.

What a trust can legitimately earn:

• Profits of a genuine business with employees, equipment, multiple customers and business risk
• Investment income: rent, dividends, interest, capital gains
• Income from assets or intellectual property the trust owns

The dividing line is whether the income is a reward for your personal exertion (stays yours) or a return on a business structure or assets (can be the trust's). A contractor earning income mainly from one client through a trust is usually caught by PSI; a business passing the results test or the other PSI business tests is not. This is the single most misunderstood point in family trust marketing, and getting it wrong is expensive.

What it costs to set up a family trust

Add a bucket company later only when profits justify it; it is cheap to add and pointless to run empty.

The roles inside a trust, and the one that actually holds the power

A discretionary trust has more moving parts than a company, and the labels matter:

• Trustee (ideally a company): legal owner of the assets, signs contracts, makes the annual distribution decisions. Directors of the corporate trustee run the show day to day.
• Appointor (or principal): the person who can remove and replace the trustee. This is the real control seat. Whoever holds it can change everything else; choose it deliberately and deal with it in your estate planning, because an appointor role that dies with its holder, or lands with the wrong person in a family dispute, undoes every careful structure above it.
• Beneficiaries: the family class who can receive distributions. Under a discretionary deed nobody is entitled to anything until the trustee resolves, which is precisely where the asset protection and the flexibility both come from.
• Settlor: establishes the trust with a nominal sum and then must have nothing further to do with it, and can never benefit.

Family trust elections and the tax the family forgets

Making a family trust election (FTE) locks the trust to one individual's family group in exchange for practical benefits: access to franking credits flowing through the trust, easier use of prior-year losses, and simplified trustee beneficiary reporting. The cost is family trust distribution tax at 47% on any distribution outside the family group, forever. Most trading family trusts make the election eventually; the specified individual should be chosen with the family tree in front of you, because in-laws, step-relationships and future generations all hang off that one name.

Structures change; plan the succession now

Businesses outlive their founding structure. Common transitions and their tax friction: sole trader into company or trust (CGT and duty relief usually available via the small business restructure rollover for genuine restructures); admitting the next generation (in a trust, often no transfer at all, just changed distributions and eventually the appointor baton; in a company, share transfers with CGT); and sale (where the trust's discount and the small business CGT concessions do their best work). The structure that makes succession cheapest is almost always the one set up earliest, which is the quiet argument for getting this decision right while the business is still small.

Choosing: a short decision path

1. Profit under roughly the tax-free-and-low-bracket capacity of the family? Sole trader simplicity may still win. Revisit yearly.
2. Trading business, variable family incomes, saleable asset one day? Discretionary trust with corporate trustee.
3. Retaining most profits to fund growth, or bringing in investors? Company, or trust-plus-bucket-company hybrid.
4. Meaningful risk in the business? Whatever you choose, keep the premises and passive assets in a separate entity from the trading operation.

Structure is cheapest to get right at the start. Restructuring later can trigger CGT and stamp duty, although the small business restructure rollover and CGT concessions soften genuine cases.

This article provides general information only, current at the date of publication, and does not constitute personal tax, legal or financial advice. Consider your circumstances or speak with us before acting. Liability limited by a scheme approved under Professional Standards Legislation.