Trading in a trust? It is probably costing you.
A discretionary trading trust cannot keep a cent of its profit. Everything left at 30 June is taxed to the trustee at the top marginal rate, so the whole surplus has to leave the business every year - and once your business is properly profitable, that is the wrong shape for it.
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The problem, in one sentence.
Section 99A taxes undistributed trust income to the trustee at 45% plus the 2% Medicare levy. That is not a penalty anyone plans for - it is the reason every trading trust in the country distributes its entire profit every June, whether or not the business wanted that money to leave.
Profit cannot stay in the business
The surplus that could have funded stock, a hire or the next site has to be distributed instead, and then find its way back in as a loan from the people who just received it. A company simply keeps it, at 25% or 30%.
You make the same decision every June
Who receives what, whether the resolutions are in place before 30 June, whether anyone's circumstances changed. Every year, under time pressure, with real money riding on getting it right.
Losses get trapped
A trust loss cannot be distributed. It stays in the trust until there is income to absorb it, subject to the trust loss rules - so a bad year does not soften the good one the way it would in a company group.
It is hard to sell or share
A buyer wants shares. A key person you want to bring in wants equity. Neither exists in a discretionary trust, and inventing something equivalent mid-negotiation is expensive and slow.
Risk and value sit in one place
The entity signing contracts and employing people is the same one holding everything the business has built. Separating those two things is the cheapest protection available to you.
The concession is being narrowed
A 30% minimum tax on discretionary trust distributions was announced from 1 July 2028, with a restructure rollover from 1 July 2027. Not yet law - but the direction of travel is not ambiguous.
What happens to your trust in 2028.
There are roughly a million discretionary trusts in Australia and a large share of them belong to business owners in exactly this position. The proposed change does not affect them all equally - it depends entirely on where the surplus goes. Put your numbers in and look at both columns, because the point only shows up across the two together.
Total tax on $400,000 of trust profit
$160,000 of it is surplus the family does not need
| Where the surplus goes | Now, to 30 June 2028 | Proposed, from 1 July 2028 |
|---|---|---|
| All distributed to familyThe surplus pushed out on top of what you already drew | $120,276 | $120,276Only affected where the family's own rate is under 30% - the proposed trustee minimum sets a floor. |
| Surplus to a bucket companyThe orthodox patch, and the best answer available today | $98,376Best today | $134,376The proposed design gives the company no credit for the trustee tax, so the same income is taxed twice. |
| Trading through a companyThe surplus never enters a trust - it is retained at the company rate | $98,376Best today | $98,376Best from 2028Unchanged. The proposed measure taxes trust income, and there is none. |
| Nothing distributed at allSection 99A - what happens if the June resolutions are missed | $133,576 | $133,576Already the worst outcome, and it does not get worse. |
Today the bucket company and the company structure tie. From 2028 they do not.
On tax alone, both cap the surplus at the company rate today - which is exactly why the bucket company has been the orthodox patch for so long. On $160,000 of surplus its effective rate then goes from 25.0% to 47.5%, about $36,000 a year more tax on the same profit, because the proposed design taxes it at the trustee and then again in the company with no credit. That is not a side effect. It is the stated purpose of the measure.
Trading through a company is the only column that does not move, because there is no trust income for the measure to reach. It also never needed the Division 7A loan agreements, the annual repayments or the June distribution deadline that the bucket company route runs on - so even in the years where the tax ties, the work does not.
The figure above assumes the company is taxed on what it actually receives, after the trustee tax. On a harsher reading of "no credit" - the company assessed on the full entitlement - the same surplus lands nearer 55.0%. Which of those the final law produces is not yet knowable, and the gap between them is itself a reason not to build the next five years on this route.
The right-hand column is proposed, not law. The 30% minimum tax on discretionary trust income from 1 July 2028 was announced in the 2026‑27 Budget, consultation is continuing, and the rate, the start date and the treatment of existing entitlements could all change. The figures assume a base rate entity at 25%, that what you live on is drawn first in every scenario, and that the family has no other income. Your own position will differ.
Indicative estimate only, not advice. While all care is taken, LINK Advisors accepts no liability for figures relied on here. Always speak to your accountant.
The window opens 1 July 2027
Three-year CGT rollover relief has been flagged for businesses restructuring out of trusts. Proposed, alongside the measure itself.
The rules bite 1 July 2028
One financial year after the window opens. Which means the sensible order is to restructure inside the relief, not after the tax starts.
The window closes 30 June 2030
And a restructure is not a fortnight's work. Valuations, financing, deeds and duty applications all take longer than people expect.
Based on announced measures as at 19 August 2026. The 30% minimum tax on discretionary trust income and the associated rollover relief were announced in the 2026‑27 Budget and are not yet law; consultation is continuing and the final measures may differ.
If you are in one, there is a way out.
Moving a trading trust into a company is the most common restructure we do, and there are two routes: a Subdivision 328-G rollover that moves the business across with no tax event, or an arm's length sale where a new company buys the business at market value using external funding, which can put a large lump in the owners' hands. Which one fits depends on what the business is worth, what it can borrow and what you actually want out of it.
In almost every case the trust stays. It stops trading and starts doing what a trust is genuinely good at - holding the shares in the new trading company, holding the property, holding the assets you never want inside an operating entity.
The full detail of both routes is on the restructuring page, along with a calculator that prices what your current structure is costing you each year.
Where bucket companies still fit.
None of the above makes a corporate beneficiary wrong. If you are trading in a trust today and producing more profit than the family needs, distributing the surplus to a bucket company caps the tax on it at the company rate instead of 47%, and that is worth real money right now. Just be clear about what it is.
What it does
Caps tax on the surplus at 25% or 30% rather than 45% plus the 2% levy, and defers the rest until the money is paid out as a franked dividend in a year that suits you. On a large distribution the timing benefit alone is significant.
What it costs
The cash belongs to the company. Using it in the family group needs a complying Division 7A loan with minimum repayments at 8.77% for 2026-27, managed every year without fail. Miss it and it becomes a deemed unfranked dividend.
What it is not
A fix for the structure. It manages the consequence of trading in a trust rather than removing it, and it does that against a concession with an announced end date. Use it, and plan the move at the same time.
There is more to it than one section can carry - the shareholding, the Division 7A loans, and what happens on the announced 2028 timetable. The full bucket company review is here.
Frequently asked questions.
What is a discretionary trading trust?
A discretionary trust - usually a family trust with a corporate trustee - that runs an actual business rather than just holding assets. The trustee carries on the trade, and the deed gives the trustee discretion over who receives the income each year. It was the default structure Australian small businesses were set up in for about three decades, which is why so many profitable businesses are still sitting in one.
Why shouldn't I trade in a trust?
Because a trust cannot keep its profit. Income not distributed by 30 June is taxed to the trustee under section 99A at the top marginal rate plus the Medicare levy, so in practice the entire surplus has to be pushed out to beneficiaries every single year - whether or not the business needed that cash to stay in it. A company retains profit at 25% or 30% and lets you choose the year it comes out. On top of that, losses are trapped inside a trust, and the structure is awkward to sell or bring a partner into.
Is a trust ever the right structure?
Often - just not for trading at scale. Trusts are excellent at holding assets: the property, the shares in your trading company, the intellectual property. They give flexibility over who receives investment income and they keep valuable assets away from the entity carrying the trading risk. The distinction that matters is holding versus trading, and most of the businesses we restructure keep their trust and simply stop trading in it.
What is a bucket company?
A company set up as a beneficiary of your discretionary trust - a corporate beneficiary. Distributing surplus trust income to it caps tax on that income at the company rate rather than your top marginal rate. It is a genuine and orthodox strategy, and it is the standard patch for a trading trust producing more profit than the family needs. It is a patch, though: it manages a symptom of the structure rather than fixing the structure.
What's the catch with a bucket company?
The distributed cash legally belongs to the company. If the family group uses it without proper arrangements, Division 7A treats it as an unfranked dividend. The standard fix is a complying Division 7A loan agreement with minimum repayments at the ATO benchmark interest rate - 8.77% for 2026-27 - which is workable, but has to be managed correctly every single year. It is also worth being honest about the trade: you are borrowing your own money back at 8.77% to solve a problem a company structure would not have created.
How do the proposed trust tax changes affect this?
The 2026-27 Federal Budget announced a 30% minimum tax on discretionary trust distributions from 1 July 2028, with a three-year restructure rollover proposed from 1 July 2027 to let people move out. It is not yet law and the detail can still change. But the direction is unambiguous: the gap that makes distributing out of a trading trust work is being narrowed on purpose, and a rollover window is being opened to move through. That makes reviewing your structure now more important, not less.
Is any of this the kind of thing the ATO attacks?
A properly run bucket company with complying Division 7A loans is orthodox tax planning, and so is a genuine restructure under Subdivision 328-G. What attracts attention is sloppy execution - unpaid present entitlements, missed loan repayments, and distributions to people who never see the money, which is section 100A territory. That is precisely why this belongs with a Chartered Accountant rather than a template, and why we document the reasoning rather than just the journal entries.
Find out what your structure is actually costing.
A one-hour review tells you whether the trust is still the right home for the business, what moving would cost and what it would save.
Or call 07 3899 8311.