Entity Setup
Structuring Your Entity in Australia: Choosing Between a Trust, Company or Pty Ltd
Dive into how to choose the right structure for your business or investment in Australia — company, trust or proprietary limited — to maximise tax outcomes and limit risk.
By NomadicTax Research Team • 5-8 min read • November 17, 2025
## Understanding the Options
When setting up a business or moving an investment into a new structure, choosing the right entity type in Australia is crucial. The three primary choices are:
- **Company (Pty Ltd)**: A separate legal entity taxed at rates applicable to companies. Owners (shareholders) have limited liability.
- **Trusts** (discretionary, unit, hybrid): Not taxed in the trust by default; beneficiaries are taxed on their share. Offers income splitting, asset protection, and flexibility.
- **Sole Trader / Partnership**: Simpler structure with direct taxation on the individual; limited asset protection and less flexibility.
## Key Factors to Consider
| Factor | Why It Matters | Example |
|---|---|---|
| Tax Rates & Brackets | Companies pay flat company tax; individuals pay progressive rates. For high income, company profit + dividend franked distributions may reduce tax payable. | If you expect net profits of $500,000, retaining profits in a company and paying dividends later might defer personal tax. |
| Liability & Risk | Trusts and companies limit personal exposure; sole traders are fully exposed. | If you're manufacturing, defects or warranty claims could lead to personal liability unless protected. |
| Flexibility & Succession | Trusts allow income to be distributed to beneficiaries; useful for family groups. Companies have defined shares. |
| Startup and Compliance Cost | Companies and trusts need formal setup, bookkeeping, and compliance. Sole trader setups are minimal. |
## Legislative Changes to Be Aware Of
Recent laws impact **thin capitalisation**, **debt deduction creation rules (DDCR)**, and **base rate entity (BRE)** status. These affect how companies and intergroup debt are treated, especially for multinationals or groups with overseas operations. ([ato.gov.au](https://www.ato.gov.au/about-ato/consultation/in-detail/stewardship-groups-key-messages/large-business-stewardship-group/large-business-stewardship-group-key-messages-5-march-2025?utm_source=openai))
Also, amendments to the *Treasury Laws Amendment (Making Multinationals Pay Their Fair Share – Integrity and Transparency) Act 2024* introduce new obligations. ([ato.gov.au](https://www.ato.gov.au/about-ato/consultation/in-detail/stewardship-groups-key-messages/large-business-stewardship-group/large-business-stewardship-group-key-messages-5-march-2025?utm_source=openai))
## Actionable Planning Steps
1. **Forecast profit & distribution needs**: If much profit will be retained rather than distributed, company structure may yield benefits. If distributions to family are significant, trust may work well.
2. **Assess overseas exposure**: If your group has foreign ownership or you make payments of interest/dividends/royalties overseas, thin capitalisation and withholding obligations matter. ([ato.gov.au](https://www.ato.gov.au/about-ato/consultation/in-detail/stewardship-groups-key-messages/large-business-stewardship-group/large-business-stewardship-group-key-messages-5-march-2025?utm_source=openai))
3. **Check whether you qualify as a base rate entity (BRE)**: Certain small-to-medium companies get lower tax rates. Ensure you meet aggregated turnover and passive income tests. ([ato.gov.au](https://www.ato.gov.au/about-ato/consultation/in-detail/stewardship-groups-key-messages/large-business-stewardship-group/large-business-stewardship-group-key-messages-5-march-2025?utm_source=openai))
4. **Plan for compliance burden**: Setup of trusts invites more paperwork; companies require board minutes, ASIC filings. Consider ongoing legal and accounting costs.
5. **Seek rulings and guidance**: With recent draft rulings (like PCG 2024/D3) regarding thin capitalisation and debt deductions, stay updated. ([ato.gov.au](https://www.ato.gov.au/about-ato/consultation/in-detail/stewardship-groups-key-messages/large-business-stewardship-group/large-business-stewardship-group-key-messages-5-march-2025?utm_source=openai))
## Case Example
_Scenario_: Two siblings inherit $2M rental property. They anticipate $300,000 net income per year.
- As individuals (partnership): taxed at individual rates (~$45%+) likely.
- If set up discretionary trust: income directed to beneficiaries (children/spouse) who have low other income — could reduce marginal rate.
- If set up company: taxed at the flat rate (which depends if BRE or not, but say ~25–30%), distributions in dividends may carry franking credits.
Conclusion: If you can manage trust compliance and beneficiaries have low income, trust may provide best after-tax outcome.
## Practical Tips
- Maintain clear documentation — trust deeds, company constitution, minutes.
- Ensure software and accounting systems track related-party debts, transfers, intangible assets (for LCMSF reporting). ([ato.gov.au](https://www.ato.gov.au/businesses-and-organisations/international-tax-for-business/in-detail/pricing/transfer-pricing/country-by-country-reporting/country-by-country-reporting-guidance/local-file-changes-from-1-january-2025?utm_source=openai))
- Periodically review the structure, especially if profits grow significantly or operations cross borders.
By weighing these elements — liability, taxation, flexibility — you can select an entity setup aligned with your goals and compliant with Australia’s evolving rules.