Company vs Trust: Which Structure Wins for Family Business Succession in 2026?

by Nasser ZreikaSep 8, 2026Succession Planning

When a family business changes hands, the biggest decisions rarely come down to who takes over. They come down to what they take over. A company and a family trust can run the exact same business, employ the same staff and serve the same customers — yet hand the next generation two completely different sets of rights, risks and tax bills.

Choosing between them is one of the more consequential calls in Australia’s $3.5 trillion generational wealth transfer, and it’s a decision that’s easy to leave unmade for years past when it should have been reviewed.

According to Grant Thornton’s 2025 Family Business Report, only 19% of Australian family businesses have a documented succession plan, and PwC’s Australian Family Business Survey found 83% of owners have no succession plan at all despite 38% wanting to hand the business to the next generation.

Structure is usually the part that gets skipped — not because it doesn’t matter, but because “we’ll sort out the company or trust thing later” feels less urgent than picking a successor.

In practice, the structure decision shapes almost everything else: who controls the business day to day, how profits get taxed, what happens if a family member divorces or is sued, and how smoothly (or messily) the next handover goes.

This article looks at how a trading company and a discretionary family trust each handle succession, what the 2025–26 tax settings actually mean for each structure, and the questions worth asking before you decide — or before you assume your existing structure is still the right one.

Why the Structure Question Is a Control Question First

Every structure decision for a family business is really a decision about three things: who controls it, who benefits from it, and who’s exposed if something goes wrong. A company and a trust answer all three questions differently.

In a company, control sits with whoever holds the voting shares, and the board runs the business under the Corporations Act. Succession is a share transfer: Mum and Dad’s shares move to the kids (by sale, gift, or via the estate), and the constitution or a shareholders’ agreement decides how disputes, exits and valuations are handled. It’s a familiar, well-understood legal shape, and it’s the same shape a bank, a landlord or a future buyer will expect to see.

In a discretionary family trust, no beneficiary owns anything until the trustee decides to distribute it. Control instead sits with whoever holds the keys to the structure: the trustee (who runs it day to day) and the appointor or principal (who can hire and fire the trustee, and who is usually the real seat of power).

Succession here isn’t a share transfer — it’s a change of appointor and trustee, governed by whatever the trust deed says. That flexibility is the trust’s biggest selling point and, if the deed is vague or out of date, its biggest succession risk.

The Company Case: Simple Control, Less Flexible Tax

A company is usually the easier structure to hand over cleanly, because ownership is already divided into discrete, transferable units — shares.

That makes it straightforward to give one child 40% and another 30%, bring in a non-family manager as a minority shareholder, or sell part of the business without unwinding the whole entity.

Tax rate: a company pays a flat 25% tax rate if it’s a base rate entity (aggregated turnover under $50 million and no more than 80% passive income) for the 2025–26 income year, or 30% otherwise. That rate doesn’t move with how much the owners draw out personally, which is useful for a business that’s reinvesting profits rather than distributing them.

Retained profits: a company can retain earnings inside the entity to fund growth or working capital without pushing that income onto anyone’s personal tax return, franking the dividend later when it’s actually paid out.

Loss recoupment: companies can generally carry forward tax losses more reliably than trusts, which must satisfy stricter trust loss tests.

No CGT discount: this is the trade-off. Companies don’t get the 50% CGT discount that individuals and trusts receive on assets held more than 12 months, so a capital gain on sale of a business asset is taxed more heavily inside a company than it would be flowing through a trust to an individual beneficiary.

Liability separation: shareholders’ personal assets are generally protected from business debts (directors’ personal guarantees and director duties aside), and a corporate structure is what most banks, landlords and larger customers expect to contract with.

The Trust Case: Flexible Tax, More Deed-Reading

A discretionary trust’s appeal has always been flexibility — the trustee can stream income to whichever beneficiaries make sense for a given year, spreading profit across family members on lower marginal tax rates and accessing the 50% CGT discount on eligible gains. But 2026 is not a forgiving year to be sloppy about how that flexibility gets used.

Section 100A scrutiny: the ATO’s current guidance means a distribution to an adult child or another lower-taxed beneficiary can be challenged if that person doesn’t genuinely receive and control the benefit — for example, if the “distribution” is really just repaying Mum and Dad for the child’s school fees. Trustees are expected to keep records showing beneficiaries actually receive what they’re presently entitled to.

Division 7A and unpaid present entitlements: where a trust distributes to a corporate “bucket company” beneficiary but doesn’t pay the cash across, an unpaid present entitlement can be treated like a loan from the company, triggering complying loan terms and deemed dividend risk if it isn’t managed. The ATO’s benchmark interest rate for Division 7A complying loans is 8.37% for the 2026 income year.

Vesting dates: most Australian trusts must vest — legally end and distribute everything — within a set period. In Victoria, NSW, Tasmania and WA that’s generally an 80-year statutory perpetuity period. South Australia is the exception: SA effectively abolished the rule against perpetuities, so an SA-governed trust deed can run indefinitely, though a court can still be asked to wind it up after 80 years. If your trust deed was drafted decades ago, it’s worth checking what vesting date it actually specifies, and under which state’s law it operates.

Land tax: in South Australia, land held on trust is taxed on a much lower starting threshold than land held individually. For 2026–27, the general land tax threshold is $936,000, but land held on trust starts being taxed from just $25,000 of site value. If the trust owns the business premises, that difference can be a meaningful annual cost.

CGT discount: unlike a company, a trust can distribute a capital gain to an individual beneficiary and pass through the 50% CGT discount, which is often the deciding factor for businesses expecting to sell in the next decade.

2025–26 Tax Snapshot: Company vs Trust

Factor	Company	Discretionary Trust
Tax rate on profit	25% (base rate entity) or 30%	Flows through to beneficiaries at their marginal rates; top rate 47% if undistributed
CGT discount on sale	None	50% available when streamed to an individual
Small business CGT concessions	Available if eligibility tests are met	Available if eligibility tests are met
Control mechanism	Shares + constitution/shareholders’ agreement	Trustee + appointor, per the trust deed
Succession method	Transfer or sale of shares	Change of appointor and trustee
ATO scrutiny focus	Div 7A on shareholder loans, franking integrity	Section 100A, UPEs, trust distribution reporting
SA land tax (if holding premises)	General threshold from $936,000	Trust threshold from $25,000
Lifespan	Perpetual	Governed by vesting date (indefinite under SA law; 80 years in most other states)

One thing both structures share: the small business CGT concessions. A capital gain from selling business assets can potentially be reduced or eliminated under Subdivision 152 of the tax law, provided the business passes the relevant turnover or net asset tests — currently an aggregated turnover under $2 million, or net assets under $6 million.

On 18 June 2026, the Government announced it intends to lift the turnover threshold for the 50% active asset reduction specifically to $10 million, though this change was still before the Senate as at the time of writing and the $6 million net asset test remains unchanged for the other three small business concessions. Whichever structure you use, this is worth reviewing well before a sale or handover, not after.

So Which Structure Actually Wins?

There’s no universal winner — the right answer depends on what the succession is actually trying to achieve.

A company tends to suit succession better when: there are multiple, unrelated or semi-related owners who need clearly defined percentage stakes; the business is reinvesting most of its profit rather than distributing it; you expect to bring in external investors, a bank facility, or eventually sell equity; or you want an unambiguous, easily documented ownership transfer for the next generation.

A trust tends to suit succession better when: income needs to be shared flexibly across family members on different tax rates each year; asset protection from a beneficiary’s personal creditors or a family law dispute matters more than clean, divisible ownership; the business (or the assets behind it) is expected to be sold at a gain, and you want access to the CGT discount; or the family wants one generation to retain ultimate control (via the appointor role) while income is shared more broadly.

The Hybrid Structure Many Adelaide Family Businesses Actually Use

In practice, a lot of established family businesses don’t pick one or the other — they run a trading company with the discretionary trust sitting above it as a shareholder, or a corporate trustee running the trust so limited liability applies at the trustee level.

This combines the company’s cleaner operational and lending profile with the trust’s flexibility around how profits are ultimately distributed to family members.

It adds a layer of complexity (and cost) that isn’t justified for every business, but for a business heading into a multi-generation handover, it’s often the structure worth costing out properly rather than dismissing.

Whichever direction makes sense, restructuring an existing business — moving assets from a sole trader or partnership into a company or trust, for example — is its own CGT and stamp duty event unless a specific rollover applies, so this isn’t a decision to make on a spreadsheet alone.

If your business already sits in a structure that no longer fits how the family actually plans to hand it over, that’s worth raising well before retirement is on the calendar — see our guide to business succession planning in Adelaide for the broader planning sequence, and our article on binding death benefit nominations if super sits alongside the business in your estate plan.

Frequently Asked Questions

Is it expensive to change from a trust to a company, or vice versa?

It can be, because moving assets between structures generally triggers a capital gains tax event and, in some states, stamp duty. Some restructures qualify for CGT rollover relief under the small business restructure rollover rules, but eligibility is specific and needs to be checked against your business’s numbers before you act, not after.

Can a family trust own shares in the family company?

Yes, and it’s a common hybrid structure. The trust holds the shares in the trading company, so trading profit can be paid up to the trust as a dividend and then streamed to family beneficiaries at the trustee’s discretion, while the operating business still benefits from the company’s liability protection and lending profile.

Does a company or a trust protect business assets better in a divorce?

Family Court considers the substance of control, not just the legal label, so neither structure is a guaranteed shield. That said, a discretionary trust where a beneficiary has no fixed entitlement can sometimes offer more protection than direct share ownership, provided the trust has genuinely been operated at arm’s length and isn’t simply the beneficiary’s asset in another name. This is a specialist area — get advice specific to your situation.

What happens to a discretionary trust when the appointor dies without a plan?

It depends entirely on the trust deed. Some deeds automatically pass the appointor role to a named successor or the appointor’s legal personal representative; others are silent, which can leave control of the trust in limbo or contested at exactly the moment the family can least afford a dispute. Reviewing who the deed actually appoints — and updating it if it doesn’t reflect the current plan — is one of the simplest, most overlooked succession tasks.