Understanding Company Tax in Australia

A company is a separate legal entity that pays tax on its own profits. In Australia, companies pay a flat rate of corporate tax, meaning the rate is the same regardless of how much profit the business makes (within certain thresholds).

For FY 2025-26, the company tax rate is 25% for base rate entities — businesses with an aggregated turnover under $50 million and no more than 80% of their income from passive sources (such as dividends, interest, and rent). All other companies pay the standard rate of 28%.

Companies also benefit from franking credits. When a company pays tax on its profits and then distributes those profits as dividends to shareholders, it attaches franking credits that prevent double taxation. Shareholders receive a credit for the tax the company has already paid.

Understanding Trust Tax in Australia

A trust is not a separate legal entity for tax purposes. Instead, it is a relationship where a trustee holds assets for the benefit of beneficiaries. The trust itself does not pay tax on its income — instead, the income is distributed to beneficiaries, who pay tax at their own marginal rates.

The most common business trust is a discretionary (or family) trust. The trustee has discretion over how much income to distribute to each beneficiary each year. This flexibility allows trustees to distribute income to family members on lower tax brackets, reducing the overall tax for the family group.

If the trustee does not distribute all income, or if a beneficiary is under 18 and receives more than $416 of unearned income, the trustee pays tax at the highest marginal rate (45%) on that undistributed income — known as penalty tax rates. This is a crucial rule that makes proper distribution planning essential.

Key Tax Comparison: Company vs Trust

Each structure has different tax outcomes depending on your income level, business goals, and family situation. The table below compares the most important tax features side by side.

Tax Outcomes at Different Income Levels

To understand which structure saves you more, consider how much profit your business generates. For a base rate entity company paying 25%, any profit under $45,000 would actually cost more in tax than if it flowed to an individual on the 16% marginal bracket through a trust.

However, once business profits exceed $135,000, the company rate of 25% becomes significantly cheaper than the 30%, 37%, or 45% marginal rates that an individual would pay. For a sole trader earning $200,000 in profit, the difference between paying 25% as a company ($50,000 tax) versus 45% as an individual ($90,000+ tax) is substantial.

A trust structure gives you the best of both worlds by allowing you to distribute profits to multiple family members. If four adult family members each receive $40,000 in trust distributions, they each pay around $3,488 in tax (16% bracket), making the total tax around $13,952 — significantly less than the $50,000 a company would pay on the same $160,000 in total profit.

Use our Take Home Pay Calculator to see the tax impact at different income levels. You can also check the Income Tax Calculator for the current tax brackets and thresholds.

When a Company Structure Is Better

A company works best when you are a single business owner or partnership, your business is generating consistent profits over $80,000 per year, and you want to reinvest profits back into the business for growth. The flat 25% rate gives you certainty and allows you to accumulate capital within the company.

Companies are also preferable if you need strong asset protection, plan to seek external investment, or want to sell the business as a going concern in the future. The corporate structure is familiar to banks, investors, and potential buyers.

Another advantage is that company losses can be carried forward and offset against future profits (subject to the same business test or continuity of ownership test). This is especially valuable in the early years of a business when expenses often exceed revenue.

When a Trust Structure Is Better

A trust structure excels when you have family members who earn little or no income. By distributing business profits to a spouse or adult children on lower tax brackets, you can dramatically reduce the overall tax your family pays.

Trusts also offer flexibility. You can change which beneficiaries receive income each year depending on their circumstances. And when you sell a business asset held in a trust, the 50% CGT discount can flow through to beneficiaries, who may also qualify for the small business CGT concessions.

For professionals (doctors, lawyers, accountants) with high personal incomes, a trust combined with a corporate trustee and a bucket company can be a powerful structure for managing tax, though anti-avoidance rules like the personal services income (PSI) rules may limit some of these benefits. Always check with a tax professional before setting up a complex structure.

Additional Considerations: Super and Tax Offsets

Both company and trust structures must pay the Superannuation Guarantee at 12% (rising to 12.5% from 1 July 2026) for eligible employees. Business owners can also use salary sacrifice arrangements to contribute additional super, reducing overall taxable income.

For company directors, salary sacrificing into super is straightforward and reduces the company's payroll tax and PAYG withholding obligations. Trust beneficiaries receiving distributions cannot salary sacrifice into super from trust distributions, though they can make personal deductible contributions.

Use our Superannuation Calculator to estimate your super balance growth and see how your chosen structure affects your retirement savings.

Frequently Asked Questions

Can I change from a company to a trust or vice versa?

Yes, but it is not a simple process. Changing structures typically involves closing the old entity and setting up a new one, which can trigger capital gains tax on asset transfers and may have stamp duty implications. It is better to choose the right structure from the start with professional advice.

Do I need an accountant to set up a company or trust?

You can register a company yourself through ASIC's online portal, but a trust requires a formal trust deed usually prepared by a lawyer or accountant. We strongly recommend professional advice for both, as the wrong structure can cost much more in tax than the cost of advice.

Does a trust pay the Medicare Levy?

No, the trust itself does not pay Medicare Levy. Medicare Levy applies only to individuals. Beneficiaries pay Medicare Levy on their share of trust income as part of their personal tax return. Use our Medicare Levy Calculator to see the impact on your personal situation.

What is a bucket company and how does it work with a trust?

A bucket company is a corporate beneficiary of a discretionary trust. Excess trust income that the trustee does not want to distribute to individual beneficiaries can be distributed to the bucket company, where it is taxed at the company rate of 25% instead of at penalty trust rates. This strategy requires careful planning and professional advice.

Is a company or trust better for capital gains when selling the business?

Both structures allow access to the 50% CGT discount if the asset has been held for more than 12 months. Trusts offer additional flexibility by streaming capital gains to specific beneficiaries who can use their own capital losses or CGT concessions. Companies generally cannot pass the benefit of the 15-year small business retirement exemption as easily.

Which structure is cheaper to run each year?

A company is generally cheaper and simpler to run. Annual costs include ASIC fees ($272 per year) and a company tax return ($800–$1,500 with an accountant). A trust costs more because it requires a formal trust tax return, distribution minutes, and often more complex accounting ($1,500–$3,000 per year).