Company or trust: how to choose
The right choice depends more on how you plan to exit than on first-year tax savings.
A company gives you a flat 25% or 30% rate, retained earnings that can fund growth, and limited liability. It gives you no CGT discount on the sale of assets it holds, and getting profits out to you personally means wages, dividends or Division 7A.
A discretionary trust gives you flexibility in who receives income each year, access to the 50% CGT discount, and the small business CGT concessions in a form that is often easier to satisfy. It gives you no ability to retain profits at a company rate without a corporate beneficiary, and distributions must be resolved annually.
For most owner-operated businesses the answer is both: a trust operating the business, with a company as a beneficiary to cap the rate on retained profits, and any real property or intellectual property held outside the trading entity entirely.
The deciding factor is usually the exit. If the business will be sold, the CGT concessions available to each structure differ by hundreds of thousands of dollars on a modest sale. If it will be passed to children, the trust is materially easier. If it will be capitalised and raise outside investment, it needs to be a company, and the trust becomes a shareholder.
Restructuring later is possible — small business restructure rollover, CGT rollovers, and the NSW corporate reconstruction exemption all exist. All of them are more expensive and more constrained than setting it up correctly at the start.
General information only, current at the date shown above. It does not take your circumstances into account and is not a substitute for advice. If it applies to a decision you are about to make, .
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