Entity Setup
Entity Setup: Choosing Between a Trust or Company Under the 2026 Reforms
With tax changes looming on trusts and companies, setting up your entity right slightly earlier could mean big savings.
By NomadicTax Research Team • 5-8 min read • June 10, 2026
## Why Entity Choice Matters Now
The Budget’s reforms—including the minimum 30% tax on discretionary trusts from 1 July 2028, CGT discount removal from 1 July 2027, and more limited negative gearing—differently affect trusts vs companies. Choosing the correct entity structure is crucial. ([budget.gov.au](https://budget.gov.au/content/04-tax-reform.htm?utm_source=openai))
## Key Differences: Company vs Trust Post-Budget
| Feature | Discretionary Trust | Private Company |
|---|---|---|
| Minimum Tax on Distributions | **30%** tax if distributed to non-corporate beneficiaries from 1 July 2028. ([budget.gov.au](https://budget.gov.au/content/04-tax-reform.htm?utm_source=openai)) | Corporate profits taxed at company rate. Beneficiaries who are shareholders get dividends with imputation credits—no minimum tax rule. |
| Capital Gains Treatment | CGT discount removed for gains after 1 July 2027; indexation + 30% minimum then apply. ([budget.gov.au](https://budget.gov.au/content/04-tax-reform.htm?utm_source=openai)) | Similar CGT rules for companies and partnerships—no trusts-specific minimum. Gains taxed under corporate rules, then to shareholders upon dividend. |
| Negative Gearing Losses | From 1 July 2027, losses on established residential property only deductible against residential property income; limited gearing rules apply. ([budget.gov.au](https://budget.gov.au/content/04-tax-reform.htm?utm_source=openai)) | Companies can deduct losses from company income; but distribution and profit extraction may trigger tax for shareholders. |
## When Setup Timing Can Help
- If you’re starting a trust **before 7:30pm AEST on 12 May 2026** to hold real property or assets, that may attract grandfathered benefits. Post-that date acquisitions are under new rules. ([budget.gov.au](https://budget.gov.au/content/factsheets/download/tax-explainers-negative-gearing-capital-gains-tax.pdf?utm_source=openai))
- Establishing a company instead of a discretionary trust may avoid the 2028 minimum tax for non-corporate beneficiaries—but consider dividend taxation, loss utilization, and long-term plans.
- For passive income or investment portfolios, companies might give more predictable tax treatment under the new regime.
## Practical Advice for Entity Selection
- **Model both options** with expected income, assets, gains, losses over 3-5 years under both trust and company structures.
- Consult a lawyer or tax adviser to ensure trust deeds allow required distributions or amendments.
- Review the list of entities exempted from trust minimum tax (super funds, widely held trusts etc.) to assess whether your trust qualifies. ([budget.gov.au](https://budget.gov.au/content/factsheets/download/tax-explainers-negative-gearing-capital-gains-tax.pdf?utm_source=openai))
- Plan acquisitions of real property or other CGT assets with timing in mind, especially around the 1 July 2027 threshold.
## Example Case
Sarah wants to invest in shares and property, and is considering setting up either a discretionary family trust or a private company. If she uses a discretionary trust, by 1 July 2028 she’ll face 30% minimum tax on distributions to herself personally. If she uses a company, she can accept imputed dividends, avoiding the minimum tax—but then must think of double taxation and extraction strategies. Over 5 years, depending on performance and distribution strategy, company may save her money.
## Conclusion
Entity matters more than ever under the 2026 Budget reforms. The best structure depends on your assets, income streams, and timeline. Those planning now can lock in savings and avoid catching reform-driven tax increases unprepared.