Company or Trust: What Structure Should You Use to Buy a Business in Australia?

When you're buying an operating business in Australia, one of the first questions your accountant will ask is: what entity are you buying it into? Most people have heard of trusts and companies, and most people have a vague sense that one of them is better for tax — but the details matter, and the right answer depends on your situation more than any generic advice will admit.

Here's the short version: a company is simpler for bank lending, cleaner for shareholder agreements, and easier to bring investors into. A discretionary trust (family trust) offers more flexibility on distributing profits and some asset protection advantages. A unit trust sits somewhere in between — fixed ownership percentages like a company, but with the tax flow-through of a trust. Most business buyers end up with one or a hybrid of these three.

This is covered in depth in Module 6 of the Playbook.

What is a trust structure in Australia?

A trust is a legal arrangement where a trustee holds assets on behalf of beneficiaries. In business, that means the trustee (usually a company, called a corporate trustee) legally owns and runs the business, but the profits flow to the beneficiaries — which might be you, your spouse, your kids, or a related company.

There are two main trust types relevant to buying a business:

Discretionary trust (family trust): The trustee has discretion over how to distribute income each year. You can split income between family members to minimise tax — $50,000 to your spouse at a low tax rate, $50,000 to yourself, $18,200 to an adult child, and so on. This flexibility is the main reason people use them.

Unit trust: Each unit represents a fixed percentage ownership, like shares in a company. No discretion over distributions — your percentage determines your slice. These are often used when there are multiple investors who want certainty about their ownership stake.

The trustee company (the vehicle that actually operates the business day-to-day) is typically a $1 shelf company set up specifically for this purpose. This matters for liability: the operating company is exposed, but your personal assets — and the trust's underlying assets — have a layer of protection between them and trade creditors.

Company vs trust: what experienced buyers actually choose

Most first-time buyers default to whatever their accountant recommends, which in Australia often means a family trust with a corporate trustee. It's not wrong — but it's not automatically right either.

Here's how the two structures actually compare across the things that matter when you're buying a business:

Tax flexibility: Trust wins. With a discretionary trust, you can distribute income to low-income family members each year. With a company, profits are taxed at the corporate rate (25% for base rate entities under $50M in turnover, 30% otherwise) and then you pay personal tax again on dividends — unless you reinvest in the business.

Bank lending: Company wins. Most Australian banks are more comfortable lending to a company than a trust. When I was going through finance for a recent acquisition, my broker was very clear: the application is cleaner in a company, you don't need to explain the trust deed, and some lenders simply won't touch a trust at all without additional conditions. If getting a bank loan to buy a business is part of your plan, structure matters early.

Asset protection: Trust wins, but only if structured properly. The argument is that assets held in a trust are not legally "yours" — you're just a beneficiary — so they're harder for personal creditors to get at. This protection evaporates if you've personally guaranteed the business debts (which most lenders require you to do). Personal guarantees cut through corporate and trust veils in practice.

Capital gains: Discretionary trust wins. Individuals and trusts get the 50% CGT discount on assets held for more than 12 months. Companies don't. If you're planning to eventually sell the business (and you should always be planning for exit), a trust can be materially better at the back end.

Multiple investors: Company or unit trust wins. If you're doing this with a business partner, a discretionary trust where one person is trustee is a recipe for disputes. You want fixed ownership percentages — a company with shareholders, or a unit trust with a unitholders agreement.

The hidden variable: what are you actually buying?

The structure decision doesn't happen in isolation — it also depends on whether you're doing an asset sale vs share sale.

If you're buying assets (the business's equipment, contracts, goodwill — not the company itself), your new entity takes ownership of those assets. You have full flexibility to choose your structure. This is the most common arrangement for small business acquisitions in Australia.

If you're buying shares in an existing company, your new entity becomes the shareholder of that company. You have less flexibility, and you need to think about what sits above the operating company — whether that's a holding company, trust, or direct personal ownership.

A broker told me last month about a deal where the buyer had their structure all sorted in a family trust, then discovered the seller would only do a share sale (for their own CGT reasons), and the whole setup had to be reconsidered two weeks before settlement. Get your advisors talking to each other early.

The lending reality in 2026

Australian banks have gotten more comfortable with trusts over the last decade, but there's still a hierarchy. From easiest to hardest to get lending approved:

Company (simplest disclosure, standard application)
Unit trust with corporate trustee (fixed ownership, easier to verify control)
Discretionary trust with corporate trustee (complex, discretionary beneficiary structures raise questions)
SMSF (possible but specialist lenders only, generally not suitable for operational businesses)

If you're relying on vendor finance to bridge part of the purchase price, the seller generally doesn't care about your structure — vendor finance arrangements are documented against the business assets, not your entity. But the bank's senior debt will be the bigger headache.

One rule of thumb worth remembering: whatever structure you use, the lender will pierce it for liability purposes. Personal guarantees are standard. The legal structure affects your tax position and estate planning, not your exposure if the business fails.

The ATO and family trusts

People in online forums are anxious about this, and the PAA questions on Google reflect it: "Is the ATO cracking down on family trusts?"

The short answer: the ATO is watching income splitting more closely. Trust arrangements that distribute income to low-tax beneficiaries (especially adult children) are subject to Taxation Ruling TR 2022/4 and related guidance. The rules around what counts as a legitimate distribution to a beneficiary who is an employee vs a pure distribution for tax minimisation purposes have tightened.

This doesn't mean trusts are being abolished. It means you need an accountant who stays current on trust taxation — not the person who set up the structure in 2004 and hasn't reviewed it since.

The practical upside: buying a business through a trust and legitimately employing family members who contribute to the business is still a very reasonable approach. Just document it properly.

Which structure should you use?

There's no universal answer, but here are the patterns I see:

Solo buyer, no investors, planning to hold for 5-10 years and sell: Discretionary trust with corporate trustee. Tax flexibility while you operate, CGT discount when you exit.

Two or more buyers: Company or unit trust. Fixed ownership, shareholder/unitholders agreement, no disputes about discretionary distributions.

Primarily bank-funded acquisition: Lean toward a company structure, or a unit trust if you have multiple investors. Discuss with your broker before you commit — some lenders have specific requirements.

Buying via SMSF: Possible but very constrained. The business must meet the sole purpose test, you can't personally use the business assets, and you'll need specialist advice. This is uncommon for operational businesses and usually only makes sense in specific circumstances.

Inheriting an existing company (share sale): Your new entity sits above the existing operating company as a holding structure. The existing company doesn't change — you change who owns it.

Want the full framework? Grab the free Deal Structure Comparison Framework — it lays out how to compare company, trust, and hybrid structures across tax, lending, and exit scenarios.

Costs to set up

Setting up a company: $600–$1,500 (ASIC registration plus professional fees for a basic company).

Setting up a discretionary trust with corporate trustee: $1,500–$3,000 for a properly drafted trust deed and corporate trustee setup.

Unit trust: Similar to discretionary trust, sometimes slightly more complex so $2,000–$4,000.

These are one-off costs. In the context of buying a $500,000 business, they're immaterial. Where people go wrong is rushing the setup to meet an unconditional date, then discovering the trust deed has restrictions that complicate the bank application. Set it up six weeks before you need it, not two days before.

FAQ

Can a trust own a company in Australia?

Yes. A trust can be a shareholder in a company. This is a common structure for business acquisitions: a discretionary family trust owns shares in a holding company, which in turn owns the operating business or its shares. It adds a layer but gives more flexibility.

Why own a business through a trust?

The main reasons are income distribution flexibility (you can split profits between beneficiaries each financial year to minimise tax) and asset protection (trust assets are held by the trustee, not personally by you). The CGT discount on exit is also a factor.

How does a business owned by a trust actually work?

The trustee — usually a corporate trustee (a company set up specifically for this purpose) — is the legal operator of the business. It signs contracts, employs staff, holds the ABN and business licences. The profits flow to the trust's beneficiaries as distributions.

Can I use my SMSF to buy a business?

Technically yes, but subject to significant restrictions. The business must meet the sole purpose test of providing retirement benefits, and there are rules around related-party transactions. Most buyers find a standard trust or company more practical.

What structure do most business buyers in Australia use?

Most small business acquisitions under $2 million use a discretionary trust with a corporate trustee, or a simple company. Which one depends on tax situation, number of buyers, and lender preferences. Your accountant and finance broker should weigh in before you decide.

The bottom line

Structure matters — but not as much as people think in the early stages. The decision between a company and a trust is important for tax planning and asset protection, and it genuinely affects your bank application. But it shouldn't hold you up from doing the deal.

Get an accountant who has done business acquisitions before (not just set up trusts for investment properties). Get your finance broker involved early so the structure you choose actually works for the loan you need. And make the decision before you're six days from settlement (I've seen that go poorly).

The structure is the wrapper. The business inside it is what matters.

For more on deal structures, financing, and the mechanics of closing a business purchase, start at /playbook — Module 6 covers all of this in the sequence you'll actually face it.

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