Questioning Trust Structures for Long-Term Tax Efficiency

Rethinking Trusts for Long‑Term Tax Efficiency

Trusts once felt like the safe, smart default for growing a business and looking after family wealth. For many Brisbane business owners, setting up a discretionary trust was one of the first moves made after the business started to turn a profit. Then life got busy, the structure stayed the same, and the focus shifted to squeezing out a bit of tax saving each June.

That “set and forget” approach is now risky. The ATO is looking closely at how trust distributions are used, who really benefits, and whether arrangements are genuine. At the same time, company tax rates and profit levels have changed, which means that for many established businesses, a company or a company-trust combo can now be more tax efficient over the long term than a standalone trust.

In this article we want to challenge the idea that your trust is automatically the best home for your business. We will walk through what trusts were meant to do, how the rules have shifted, how company-vs-trust in Australia stacks up today, and a practical way to review your structure before the end of the 2026, 27 financial year.

What You Thought a Trust Would Do for You

Most business owners set up a discretionary trust for some sensible reasons. The usual goals were:

Split income across adult family members.
Protect personal assets from business risks.
Access the 50% capital gains tax discount on long-term assets.
Keep flexibility around who receives profits each year.

These benefits can still be real, especially where:

Several family members actually work in the business.
Family members have different income levels and genuine needs.
You hold long-term growth assets like shares or property in the trust.

The problem is that the rules around how you use these benefits have tightened. The ATO has made it clear that it does not like:

“Washing” distributions through family members who do not see any real money.
Arrangements where adult children are made presently entitled but funds stay with parents.
Reimbursement agreements that fall foul of Section 100A.

What looked fine years ago can now attract questions, penalties and extra tax. Many Queensland business owners created a trust when profits were modest and the law felt more relaxed. As profits grew and goals changed, the old trust structure was rarely revisited. Tax planning became a quick June meeting, not a thoughtful review of whether the trust still suits the bigger picture.

Company vs Trust in Australia: What Is Really Tax Efficient Now

When we strip it back, the key difference between a company and a trust is how profits are taxed and who ultimately pays the tax.

With a trading company:

Profits are generally taxed at the company rate, often 25% for base rate entities.
After-tax profits can be kept in the company to fund growth and working capital.
When profits are later paid out as dividends, franking credits pass on the tax already paid.

This “cap” on tax can be powerful when your personal marginal tax rate is higher than the company rate. If your business is consistently profitable and you want to reinvest earnings rather than draw every dollar, a company can significantly reduce the tax drag on growth.

A discretionary trust, by contrast:

Does not pay tax itself if it distributes income each year.
Pushes tax onto the beneficiaries at their personal tax rates.
Can give access to the 50% CGT discount where assets are held long term.

Trusts work well when:

Income is variable from year to year.
Multiple family members are genuinely involved and need income.
You hold growth assets and are planning for future capital gains.

Companies tend to win where:

Profits are high and you want to retain earnings for expansion.
You are building business value with an eye on a future sale.
You want cleaner access to investors or new business partners.

For many groups, the sweet spot is a mix. A common approach is:

A discretionary trust owns the shares in a trading company.
The company runs the business, pays company tax and can retain profits.
Dividends flow to the trust, which then streams income to the right family members.

You might also see “bucket” companies or corporate beneficiaries used to catch surplus trust income at the company tax rate. The right blend can give you flexibility, asset protection and long-term tax efficiency, rather than being locked into the limits of one structure.

The Hidden Tax Risks Lurking in Old Trust Structures

Older trust structures often carry quiet risks that only show up when the ATO starts asking questions or when you try to sell or pass on the business.

Key hot spots include:

Distributions to adult children or parents who never see the cash.
Unpaid present entitlements (UPEs) to companies that are not correctly documented.
Circular or artificial arrangements that look like reimbursement agreements.

On top of that, many trust deeds are outdated. They may not allow for income streaming, may have old definitions of income, or may not match how you are actually using the trust. Add in vague or last-minute distribution resolutions, and you have a recipe for:

Missed planning opportunities.
Higher than expected tax bills.
Risk of backdated documents and related penalties.

As your profits and assets grow, the cost of these issues grows too. That is why we treat structure as an accountability point. When we review a trust, we usually look at:

The trust deed and any variations.
Streaming and income definitions.
The history of distributions and who really benefited.
Loan accounts, UPEs and any corporate beneficiaries.
How well the documentation supports what has actually happened.

Small problems are much easier to fix early than when you are at the point of selling a business or dealing with an ATO review.

Designing a Future‑proof Structure for Wealth Creation

If you want to get on the front foot before the end of the 2026, 27 financial year, the starting point is a clear view of your current group and your goals.

A practical review process looks like this:

Map out every entity in your group: trusts, companies, individuals and SMSFs.
Work out who actually needs income over the next few years.
Forecast business profits and likely capital gains.
Test “what if” scenarios for company vs trust in Australia using real numbers.

From there, line your structure up with your 5 to 10-year plan. Think about:

Do you want to retain more profits to fund growth, or draw more out personally?
Are you planning a business sale or bringing in new partners or family?
Do you need stronger protection between business risk and family wealth?
How exposed are you to family law or creditor issues?

Some common changes that come out of this kind of review include:

Moving trading activity into a company owned by a family trust.
Updating trust deeds to allow clear income streaming.
Setting up a bucket company to cap tax on surplus trust income.
Cleaning up director and shareholder loans and UPEs.
Putting in place a documented annual tax and distribution strategy.

The aim is not just to pay less tax this year. It is to reduce long-term tax drag, keep options open, and protect the wealth you are building.

Take Ownership of Your Structure Before the ATO Does

Assuming your trust is “fine” because it has been around for years is no longer safe. Structures that once made sense under different rules and lower profits can now be holding your wealth back or creating avoidable risk.

At Marsh & Partners in Brisbane, we focus on helping business owners take clear, practical action. That means putting your trust deed, company structure, past distributions and future goals on the table and asking a simple question: is this still the most tax-efficient path to building and protecting long-term wealth?

If the honest answer is “not sure” or “probably not”, then it is time for a structured review, well before 30 June and before any major transaction, expansion or succession move. Owning your structure now is far easier than trying to fix it under pressure later.

Choose The Right Structure For Your Business Future

If you are weighing up company vs trust in Australia, we can help you cut through the complexity and make a choice that fits your long-term goals. At Marsh & Partners, we take the time to understand your plans so we can recommend a structure that works for tax, asset protection and growth. Reach out to our team today via our contact page and let us guide you through your next step with clarity and confidence.