Best Business Structure for 2026

Added: 2026-05-23

[00:00:01]Given the budget changes, we've had to revisit the way we're doing structures.

[00:00:05]What I've got here is essentially the old and new setups for new business owners. People come into our office everyday looking to start a new business. The first question they have for us is, "How should I structure my new business acquisition?" Well, in the past, we'd advise this structure on the left. We'd say to them, "First things first, you can operate as a sole trader or a company, but we recommend company." The reason we'd recommend company is because of limited liability and the access to a fixed tax rate of 25%.

[00:00:35]But, don't just set up a company.

[00:00:38]If you want asset protection, set up a family trust with a corporate trustee to own the shares of that company. So, then we can distribute out the profits from your company into a trust. The tax there between the company and the trust will they would be the 25%. You pass on that credit into the trust. Then the trust would have the discretion to stream those profits either to yourself or family members to pay the least amount of tax possible.

[00:01:06]Now, the trust formerly had a 0% tax rate. So, now that there's a minimum 30% tax on trusts, uh that really changed the way we look at these structures. Also, the fact that negative uh the fact that capital gains tax discount is disappearing changed the way we look at this structure because if you were to sell this business and you push the profits into the trust, then ultimately when there's no 50% CGT discount on the shares, those distributions would end up in the hands of an individual and that individual could pay 47% tax.

[00:01:44]On the right side is our new solution for new businesses. And what we've done is we've replaced the corporate trustee and trust structure with a holdings company.

[00:01:56]The holding company is a solution or an interim solution, partway solution for us and achieves a few things. The first thing it achieves is that if you were to sell the underlying trading company, rather than the profits from the that sale going through the trust to into the name of an individual, it would go into the holdings company and you could pay tax at the 25% tax rate or 30% in some cases.

[00:02:23]Then, what you could do is retain the profits in the holding company and then and then dividend them out to individuals over time utilizing their marginal tax rates each year so you stay under the 47% tax rate. So, it might take a number of years to eventually do that or you might if it there's too much profit and you can't dividend all the money out over time, you might then start investing in certain investments through your holding company, right? Another business, shares, properties, whatever it may be.

[00:02:53]Now, in this case, we were deciding whether or not to stop here or to still use a family trust, but we decided that for everyday small business owners, the cost of setting up both trading company, holding company, and a family trust on top of all that is probably too exorbitant and it'd be case-by-case assessment if we deviate from the standard advice. So, looking at this new structure versus the old structure, asset protection. Is there asset protection? Well, asset protection is available in this new structure to some extent because the trading company and the holding company have limited liability. That means if anything went wrong at either level here, so say in the trading company, if something went wrong with employees or creditors or suppliers or debtors not paying you, we could come in, liquidate this company and have no issues with the individual's assets being touched. So, if this individual, you're the business owner, you own your home, and there's a liability that's associated with your business, and you're not personally liable because, you know, you haven't personally guaranteed it, then we could come and liquidate this company, and we've protected effectively your assets here.

[00:04:08]Some people have been arguing that this new structure on the right isn't as effective in asset protection as the family trust asset protection. I'd probably say there's some degree of truth to that. The reason is if something goes wrong at trading company level, um we can still liquidate the company here the same as we would here, but the argument is the assets themselves of the business are protected more by a family trust ownership because there's a discretionary element of um ownership here in the family trust, which makes it hard for third parties to attack these assets when the individual themself are subject to litigation. So, you know, this is the going a little bit into the legalities of it, but essentially individuals who own assets via trust have been seen in some circumstances historically to be able to protect those assets from their liabilities, okay? Whereas on this right side here, uh there's a direct fixed interest from the individual into the holding company and the trading company. So, if anything happens to this individual and they go bankrupt, there's no chance that these holding company or trading company will be protected. So, if the individual goes down, the business will go down. Whereas in this case on the left, that's not guaranteed. Now, being in practice for 20 years, let me tell you, I see where liability comes from.

[00:05:32]And more often than not for a business owner, the liability's coming from the business. So, what we're trying to do is limit the business liability seeping through that corporate veil to the individual. So, we can still actually achieve a lot of asset protection with the setup on the right. But, is it as good as the asset protection of having a family trust? No. But, from a tax perspective, it's the best we can do right now in the sense of keeping it affordable for the for the business owner. Now, it is going to be cheaper to maintain the structure on the right where where and cheaper to set up as well.

[00:06:08]All right. Now, I want to jump into a variation of that, which is where trusts would still be useful and where we would sometimes include them. So, I've got here the old setup again on the right. Say we've got two individuals in the family. They own the trustee company and family trust, which owns a trading company.

[00:06:30]This was the old setup. And why was it beneficial? Well, it was beneficial where we would stream income. Let's say you've got one individual that mainly works in this trading company down here, and they make after all expenses about $300,000. What we could do is we could stream that profit from the trading company into the family trust. And then the family trust, after paying the first individual say a salary of 200 or 190,000, they'd stream the rest of that profit via dividend, um and then do a family trust distribution to the spouse that might be staying at home and have no income whatsoever. And in that case, instead of the first individual paying 47% tax on that extra say 100 110,000 of profit from the business, the second individual would pay about 50 or 60,000 on that.

[00:07:23]You know, effectively 30 35% tax. So, that is still a possibility where we can bring the tax from 47% down to say 30% even post budget. So, in the new setup, in some certain circumstances where there is going to be high profitability and an individual in the family group who is making no or low income, we would advise the trading company to be owned by a holdings company and the holding company to be owned by a family trust and then that family trust can then distribute to that um secondary individual.

[00:07:59]Now, we're going to then in that setup effectively bring the tax rate down from 47 to 30% and we're going to achieve the uh benefit where we can cap um the gain on the sale of this property at the holding company level to the corporate tax rate if we want and we can still stream profits through to two individuals. Now, why wouldn't we make this setup, which is my personal setup right now, um the the setup that we put we do for everyday business owners because setting something like this up is going to cost you, you know, 7-8 grand or, you know, whatever you pay your accountant to set up and then the ongoing compliance costs, ASIC fees for the for the three companies, you know, more tax returns. Like, it's going to we're going to have to make sure that we can see or foresee a tangible benefit to the client in utilizing the second individual or other family members in their group to reduce the tax rate. So, the family trust is not gone. The family trust isn't buried for everyone, but, you know, we're going to see probably an uptake of family trust at 1/4 of the rate that we used to see them taken up to own businesses.

[00:09:14]Uh I want to actually pivot to one more trust uh structure diagram I have for you. This is where family trust can be utilized in buying properties. Well, what do we have here?

[00:09:25]On the top, we've got an individual.

[00:09:27]That individual has the holdings company and the trading company, standard setup.

[00:09:32]And what they're trying to achieve is to buy an investment property using their profits from their company.

[00:09:39]So, what does that mean for this particular person? Well, their trading company will make a profit and pay dividends into a holdings company.

[00:09:49]That holdings company can loan the money to a trust. So, trustee company and family trust, these two units on the right make up a a family trust. Okay? And that family trust can then buy the investment property, all right? Now, Div 7A loan, company to trust, that has to be repaid. And typically, this loan from the trust to the company has to be repaid in 7 years.

[00:10:17]But, there is a provision in the Division 7A legislation where we can put security on this property and pay that loan back over 25 years.

[00:10:27]That means that you're going to be able to pay it off uh a longer period, similar to you would to a mortgage to a bank.

[00:10:35]And the interest that this trust is paying back to the holdings company is deductible for the trust. Okay?

[00:10:42]Deductible for the trust, assessable in the holdings company.

[00:10:46]Why would you want to do this? Well, remember, an individual tax rate up here is 47%.

[00:10:52]So, if the money from the trading company gets taxed at 25% and it's taxed at say 25% in the holding company, for us to put the money in the individual's name, we'd need to pay top up tax of 20% 22% and then there'd be less money to go back into the trust to buy the property, okay? But, if we loan it across, we avoid paying the top up tax, okay? We do a Div 7A loan agreement and you effectively can buy the property sooner because you've got more money available to you after tax.

[00:11:27]So, you can actually be your own bank. If you're a business owner that makes enough money, let's say you're a business owner and you made a million dollars of profits, you pay tax at 25% you're left with 750, you loan the 750 to your trust, your trust buys a property and instead of taking a $750,000 loan from the bank you've taken a $750,000 loan from your business and you're paying it off and you're getting a tax deduction for the interest as you do it.

[00:11:54]Now, why would someone want to do that?

[00:11:57]Clearly, it's you can buy a property sooner with less tax using trust and your and your trading company and profits. What's going to be the downside of this structure? Well, you need to take security on the property in order to do the loan and if you didn't have enough money to buy the property, then you're going to also going to have to get a bank loan to make up the rest of the money. If you need to do that in this scenario, the banks you're going to speak to your bank and it's case by case, but some banks don't like that you've already taken a mortgage on the property. They want to take the only mortgage on that property, so they don't want to take a second mortgage. So, is it ideal for everyone? No, but for business owners that don't want to pay a load of tax before they go buy investment properties, as you can see, we can still utilize the 25-year Div 7A loan for them to actually buy properties with their own money and the family trust is still in play.

[00:12:50]Why would I like to use a family trust here as opposed to a company and this is the key and this has got to do with the budget? It's because the budget has introduced inflation adjusted indexation.

[00:13:04]That means, like we've said, that if the cost base of the if if you sell a investment property and uh you don't have access to the 50% CGT discount, you can reduce your capital gain by indexing your cost base. You cannot do that in a company.

[00:13:22]Indexation is only available to individuals and trusts, not going to be available to companies. So, if you have a a company buying your investment, that's probably the could be the best option for you in some circumstances, but if you're looking at a long-term asset that's only going to go up similar to the rate of inflation or maybe a little bit more, and you do that through your company, you're locked in to have to pay the corporate tax rate. You're going to pay your 30% tax.

[00:13:47]But, if you do it through the family trust, you're going to be able to potentially pay in some cases no capital gains tax.

[00:13:54]And no capital gains tax is always better than 30%.

[00:13:59]So, this is the scenario where we're still going to be using family trusts as for investments, and um I think it's a good structure worth looking at. Guys, if you enjoy this podcast, please leave a comment, uh like, and subscribe. And also, if you got any questions you want us to address, please let me know. We'd love to answer your questions and engage with you guys as we keep going with the CEO Breakdown.