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The head-to-head
| Discretionary trust | Company | |
|---|---|---|
| Tax on profit | Distributed to beneficiaries at their marginal rates, so splitting across the family is the engine | Flat 25-30%, whoever owns it |
| Retaining profit | Not effectively. Undistributed income is taxed to the trustee at 47%, so every dollar must find a beneficiary by 30 June | The core strength: retain and compound at 25% |
| CGT discount | Yes, it flows through to individual beneficiaries, so goodwill and asset sales can be effectively taxed at 23.5% or less | No. This is the exit-tax trap, with the small business CGT concessions as the partial rescue |
| Losses | Trapped in the trust, plus trust loss tests before you can use them later | Trapped in the company |
| Liability | A corporate trustee gives comparable protection. Individual trustees carry personal exposure, so always use a corporate trustee | Limited, with the usual director carve-outs |
| Admin and fragility | Trustee resolutions by 30 June every year or a 47% default, plus the UPE and section 100A minefield and vesting dates | ASIC obligations and company returns, plus Division 7A on extraction |
| Best at | Family income spreading, capital-gain-rich businesses, asset holding | Profit retention, reinvestment, outside investors, eventual sale of shares |
The distribution engine and its modern limits
The trust's pitch is arithmetic: $200,000 spread as $90,000, $90,000 and $20,000 across a couple and an adult student beats $200,000 in one name by tens of thousands. You can run the splits here.
The limits that discipline it now: distributions to under-18s are taxed at penalty rates above a token amount, so the minor-splitting era is long dead; section 100A targets paper distributions where the money round-trips to someone else, with adult-child distributions the parents keep as the ATO's poster case; and every beneficiary must actually be entitled and eventually benefit. Splitting works where the family genuinely shares the economics. As a fiction, it is a compliance program with your name on it.
The hybrid most accountants actually build
A trading trust streams to the family's lower brackets and preserves the CGT discount for the eventual business sale, while a bucket company beneficiary catches profit beyond the family's efficient brackets at 25-30%, with the cash-movement discipline that structure demands.
Frequently asked questions
Is a trust or company better for a small business?
What tax does a family trust pay?
Can a trust retain profits like a company?
Can I distribute trust income to my children?
Do I need a corporate trustee?
General information only - not personal tax, financial or legal advice. Consider your own circumstances or speak to a registered tax agent. Remission of penalties or interest and payment plans are decisions of the ATO and outcomes can't be guaranteed.