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Company

A Company (Corporate Beneficiary) is a legal entity that can receive distributions from a Family Trust or operate as a standalone business. Companies provide tax rate caps (25-30%) and limited liability protection. People use companies when running a small business, or when they have enough income from their family trust that all beneficiaries are exceeding the 30% tax bracket, allowing them to cap tax rates and retain earnings for future investment.

What is a corporate beneficiary?

A Corporate Beneficiary is a company that receives distributions from a Family Trust. This structure provides tax benefits by capping the tax rate at the corporate tax rate (currently 25% for small businesses with turnover under $50M, 30% for larger companies) instead of the top individual marginal rate of 47%.

Company benefits

  • Tax Rate Cap: Maximum 25-30% tax rate on distributions, compared to 47% for high-income individuals
  • Retained Earnings: Can retain profits for future investment without paying top marginal tax rates
  • Asset Protection: Limited liability protection - company assets are separate from personal assets
  • Estate Planning: Company shares can be transferred to beneficiaries, providing flexibility in wealth transfer
  • Business Operations: Can operate as a trading business with all the benefits of corporate structure

When to Use a Company

Consider using a company in these scenarios:

  • High-Income Individuals: When you're in the 47% marginal tax bracket and want to cap tax at 25-30%
  • Trust Income Distribution: When your Family Trust has significant income and all individual beneficiaries are already in the 30%+ tax bracket
  • Retained Earnings: When you want to retain profits for future investment without paying top marginal rates
  • Small Business: When running a small business that would benefit from corporate structure and tax rates
  • Complex Family Situations: When you need flexibility in income distribution and estate planning

Tax Comparison

Companies provide significant tax advantages for high-income earners:

  • Individual (47% rate): Highest marginal tax rate applies to all income above $190,000
  • Corporate Beneficiary (25%): Small business tax rate for companies with turnover under $50M
  • Corporate Beneficiary (30%): Standard corporate tax rate for larger companies
  • SMSF Pension: 0% tax-free in pension phase (best option for retirement savings)
Tax Savings Example

On $100,000 of trust income: Individual at 47% pays $47,000 tax, Corporate Beneficiary at 25% pays $25,000 tax - a saving of $22,000. This retained $22,000 can then be invested for future growth.

Using a Company for Business

Companies are also commonly used for operating small businesses:

  • Limited Liability: Protects personal assets from business creditors
  • Tax Rates: 25-30% tax rate is often lower than individual marginal rates
  • Professional Image: Can enhance credibility with customers and suppliers
  • Employee Benefits: Can provide employee share schemes and other benefits
  • Succession Planning: Shares can be transferred to family members or sold

Company Considerations

  • ASIC Fees: Annual fees payable to ASIC for company registration
  • Compliance: Must file annual tax returns and financial statements
  • Distribution Tax: When company profits are distributed as dividends, they may be subject to additional tax depending on the recipient's situation
  • Complexity: More complex than individual tax returns, requiring professional assistance
  • Retained Earnings: Money retained in the company is taxed at company rates, but accessing it later may trigger additional tax

Integration with Family Trust

The most common use of companies in structuring is as a corporate beneficiary of a Family Trust:

  1. Family Trust receives investment income
  2. Trust distributes income to corporate beneficiary when all individual beneficiaries are in high tax brackets
  3. Company pays tax at 25-30% instead of 47%
  4. Company can retain earnings for future investment or distribute dividends when tax-effective

This structure allows you to optimize tax while maintaining flexibility for future distributions and estate planning.

How to Set Up a Company

Setting up a company involves several steps:

  1. Constitution: Create a company constitution which outlines the company's rules, share structure, and director powers
  2. Share Certificates: Issue share certificates to initial shareholders
  3. Residence: Determine company residence (Australian companies are generally resident in Australia)
  4. ASIC Registration: Register the company with ASIC (Australian Securities and Investments Commission)
  5. Apply for ABN: Apply for an Australian Business Number (ABN) - required for corporate beneficiaries and operating companies
  6. Apply for TFN: Apply for a Tax File Number (TFN) for the company
  7. Bank Account: Set up a bank account in the company's name
  8. Broker Account: Set up a broker account in the company's name for share and investment trading (if the company will hold investments)
ABN Requirements

Corporate Trustees don't need ABNs. However, Corporate Beneficiaries and Operating Companies do need ABNs. If a company is acting as both a corporate trustee and a corporate beneficiary, it will need an ABN.

Director Requirements

Directors need to obtain a Director ID number from ASIC. This is a unique identifier that directors must have before accepting a directorship. Director nominations and acceptance must be properly documented.

Account Ownership

It's critical that bank and broker accounts are opened in the company's name, not in directors' personal names. This ensures proper separation of company assets and compliance with corporate law.

Ongoing Compliance

Companies require ongoing compliance activities:

  • ASIC Annual Review: Pay annual ASIC fees and complete annual review (currently around $300/year)
  • Solvency Resolution: Directors must pass a solvency resolution each year confirming the company can pay its debts
  • Dividend Statements: Prepare dividend statements when distributing profits to shareholders
  • Director Nominations and Acceptance: Properly document any changes to directors, ensuring all directors have Director ID numbers
  • Balance Sheet & P&L: Maintain balance sheets and profit & loss statements showing company financial position
  • Share Register: Maintain a register of all shareholders and shareholdings
  • Record Keeping: Maintain detailed records of all company transactions, income, and expenses
Director Responsibilities

Directors have legal obligations including ensuring the company can pay its debts (solvency), maintaining proper records, and acting in the company's best interests. Failure to meet these obligations can result in personal liability.

Tax Reporting

Companies require several tax reporting documents:

  • Company Tax Return: Annual company tax return (formally lodged with the ATO) showing company income, expenses, and tax payable
  • Financial Statements: Balance sheet and profit & loss statement as part of the tax return
  • Dividend Statements: Statements provided to shareholders showing dividends paid and franking credits attached
  • Capital Gains Reporting: Details of any capital gains or losses during the year

Companies must lodge their tax return by the due date (typically 15 May for companies with a June 30 year end, or 5 months after year end for other periods).