Selecting the right structure for passive investment or business operations can significantly impact your tax outcomes, asset protection, and operational flexibility. Each structure offers distinct advantages and limitations.
For instance, while trusts may provide access to capital gains tax discounts, they can also introduce complexities such as minimum principal and interest repayments under Division 7A when company funds are borrowed to purchase assets.
The following comparison table is designed to highlight some of the key attributes of each structure and how they differ.
| INDIVIDUAL | COMPANY | DISCRETIONARY TRUST | SELF-MANAGED SUPER FUND | |
| TAX RATE – ENTITY | ⚠️Marginal Tax Rates (up to 47%). | ✅ 25% Base Rate Entity or 30% (until payment of dividend, where ultimate beneficiary is taxed). | ❌ 47% (only if income is retained, else 0% and beneficiaries are taxed). | ✅ 0% (Pension Phase subject to Transfer Balance Cap) or 15% (Accumulation Phase or over Transfer Balance Cap). |
| POTENTIAL LIFESPAN | Life of individual. | Perpetuity. | Up to 125 years in Queensland, often 80 years in other states. | Perpetuity but practically, lives of individual members. |
| TAX ON DISTRIBUTIONS/ WITHDRAWALS | ✅ No further taxes. | ⚠️ Tax rate of ultimate recipient (potentially with franking credit for company tax already paid). | ⚠️ Tax rate of ultimate beneficiary (potentially including any franking credits or CGT discounts). | ✅ Generally tax free where the member is aged 60 or more.
⚠️Can be 16.5% on death benefit payments to non-dependents. |
| OTHER TAXES TRIGGERED | ✅ No further taxes. | ⚠️ Loans or payments to shareholders and their associates can trigger Division 7A which requires minimum principal and interest repayments over 7 or potentially 25 years. | ✅ No further taxes. | ❌ Concessional contributions by individuals potentially subject to additional 15% Division 293 tax.
❌ Increases in value on the proportion of a member’s balance that exceeds $3m proposed to be subject to an additional 15% at the individual level. |
| DISCOUNT PERCENTAGE – CAPITAL GAINS (>12 months) | ✅ 50%. | ❌ 0%. | ⚠️ 50% on distribution. | ✅ 33.33%. |
| SET UP EASE and STRUCTURE COMPLEXITY | ✅ Simple. | ✅ Medium (companies are well understood around the world). | ⚠️ Complex (trusts have various roles which can be difficult to understand). | ⚠️ Complex. |
| LEVEL OF ASSET PROTECTION PROVIDED | ❌ Low. | ⚠️ Depends on shareholder(s). | ✅ High (where a corporate trustee is used), else Medium. | ✅ Very High (Be wary of pension phase). |
| FLEXIBILITY OF DISTRIBUTIONS | ❌ Rigid. | ❌ Rigid. | ✅ Very Flexible. | ❌ Rigid. |
| LEVEL OF REGULATION | ✅ Low. | ✅ Medium. | ✅ Medium. | ❌ Very High. |
| COMMON COMPLEX TAX COMPLIANCE CONSIDERATIONS | ✅ Minimal. | ⚠️ Division 7A, Franking Credits. | ⚠️ Section 100A, Unpaid Present Entitlements, Distributions, Family Trust Elections. | ⚠️ Non-arm’s length income, Death benefits. |
| COMPLIANCE COSTS | ✅ Low. | ⚠️ High (where shares are owned by a discretionary trust), else Medium. | ✅ Medium. | ❌ Very High. |
| FLEXIBILITY OF OPERATIONS | ✅ No borrowing restrictions. No limitations on permitted investments. | ⚠️ No borrowing restrictions. Some limitations on permitted investments (consider Division 7A and Fringe Benefits Tax where assets are used privately). If money kept in company, ok. | ✅ No borrowing restrictions. Some limitations on permitted investments (consider Division 7A and Fringe Benefits Tax where assets are used privately). | ❌ Limitations on borrowing. Limitations on permitted investments. |
| EXIT/CLOSURE COMPLEXITY | ✅ Simple. | ✅ Medium. | ✅ Medium. | ✅ Medium. |
| ABILITY TO NAVIGATE FUTURE REGULATORY CHANGES/COSTS | ⚠️ Difficult/Medium. | ⚠️ Difficult/High. | ⚠️ Difficult/High. | ❌ Very Difficult/Very High. |
While this table provides a high-level overview, the best structure for your situation will depend on your specific objectives, timeframes and circumstances.
You should always seek professional advice when considering your next investment or business structuring decision to determine the most appropriate structure.
Learn More
If you would like assistance with ensuring you have the right structures set up for your investments or business, contact Josh Meggs on jmeggs@pilotpartners.com.au or your Pilot advisor on (07) 3023 1300.