A bucket company is a company that receives distributions from a family trust, capping the tax on that income at the corporate rate (25% or 30%) instead of personal rates up to 45% plus the Medicare levy. It is a common strategy to retain and reinvest surplus profits tax-effectively. This article focuses on the dollar saving; for the full picture, including the base rate entity tests, the unpaid present entitlement decision and the top-up tax, read our complete guide to bucket companies in Australia. For owners weighing where to direct surplus profit since the new Division 296 super tax became law, a bucket company is an increasingly attractive alternative to adding to super.

If you run a business through a family trust, you already know the flexibility it offers — income can be distributed each year to family members in lower tax brackets, reducing the overall tax bill. But what happens when you have run out of low-bracket family members to distribute to? That is where a bucket company comes in.

A bucket company is one of the most effective (and underused) tax planning tools available to Australian business owners operating through a discretionary trust. When structured and managed correctly, it can reduce the tax rate on business profits from up to 47% down to 25% — a saving of $22,000 for every $100,000 of income redirected.

This guide explains what a bucket company is, how it works, the real numbers, and the risks you must not ignore.

What Is a Bucket Company?

A bucket company is simply a private company that has been set up as a beneficiary of a family (discretionary) trust. The name comes from the idea that surplus trust income is “tipped” into the company like water into a bucket — rather than being distributed to individual beneficiaries who would pay tax at their personal marginal rate.

The term “bucket company” is informal — it is not a legal term. The ATO refers to the arrangement as using a corporate beneficiary of a trust. This distinction matters: the ATO has published detailed compliance guidance specifically addressing distributions to corporate beneficiaries, and understanding its position is essential to running the strategy safely and confidently.

The company itself does not trade. It does not have employees or clients. Its sole purpose is to receive trust distributions and hold those funds, paying tax at the lower corporate rate.

This strategy is not a loophole. It is a well-established and ATO-recognised planning structure, provided it is implemented and maintained correctly. You can read the ATO’s general guidance on trust distributions on the ATO website.

For background on how discretionary trusts work and how they compare to other structures, see our guide: Family Trust or Company — Which Structure Is Right? For a comprehensive look at all Australian business structures — from sole trader through to a multi-entity trust and company setup — see our complete guide to business structures in Australia.

How Does a Bucket Company Work?

Here is the basic flow:

1. Your family trust earns business or investment income during the financial year.
2. Before 30 June, the trustee passes a resolution distributing a portion of the trust’s net income to the bucket company (which is listed as a beneficiary in the trust deed).
3. The bucket company pays tax on that distribution at the base rate entity company tax rate of 25% — this applies where the company’s aggregated annual turnover is under $50 million and no more than 80% of its income is passive. A distribution from a trading trust keeps its trading character, so the bucket company normally qualifies; where the trust’s income is mainly rent, dividends or capital gains, the rate is 30% instead. See our guide to the company tax rate in Australia.
4. The after-tax funds sit inside the company and can be invested or retained for future use.
5. When you are ready to extract those funds personally, you can pay yourself a franked dividend. The dividend comes with franking credits equal to the company tax already paid, which offset your personal tax liability on that income. When those shares are held inside a family trust, a family trust election is usually needed for the credits to flow through.

The key tax lever is the rate differential. Where an individual business owner on a high income pays up to 47% (45% top marginal rate plus 2% Medicare levy), the bucket company pays only 25%. That 22-percentage-point gap is the tax saving.

If you are in the process of establishing a family trust and want to build a bucket company into the structure from the outset, our guide on how to set up a family trust in Australia is a good starting point.

The Tax Saving: A Worked Example

Let’s put real numbers to it. Suppose your family trust earns $300,000 in net income for the year. After distributing $100,000 to your spouse (who has no other income) and $18,200 to your adult child (using their tax-free threshold), you still have $181,800 to distribute. You are personally already in the top tax bracket.

On this example alone, the bucket company saves nearly $40,000 in tax in a single year. Over five to ten years of compounding retained earnings, the wealth accumulation difference is significant.

Note that these figures use simplified marginal rate calculations. Your actual position will depend on your full income profile. For current tax rates, see our Australian income tax rates guide for 2025–26.

How Are Profits Eventually Extracted From the Bucket Company?

A common concern is: “The money is locked in the company — how do I access it?” The answer is through franked dividends.

When the bucket company pays you a dividend, it attaches franking credits equal to the 25% company tax already paid on those profits. You then include the gross dividend (dividend plus franking credits) in your personal tax return, but receive a dollar-for-dollar offset for the credits.

Here is how the extraction works in practice:

• The company pays a dividend of $75,000 (after paying 25% tax on $100,000 of profits)
• The dividend carries $25,000 in franking credits
• You declare $100,000 as assessable income
• Your tax at, say, 47% = $47,000, minus the $25,000 credit = $22,000 additional tax to pay
• Total tax paid across both entities = $25,000 + $22,000 = $47,000 — the same as if you had received it directly

This might sound like you end up in the same position, but the benefit is in the timing and compounding. By deferring the extraction to a year when you have lower personal income (for example, retirement), you may pay far less additional tax. Or, if you extract via dividends each year to multiple shareholders, the credits offset their liability efficiently.

You can also pay dividends to a family trust that holds the shares in the bucket company — maintaining distribution flexibility at the shareholder level as well.

Division 7A: The Risk You Cannot Ignore

This is the section most people gloss over — and it is the one that causes the most problems.

Division 7A of the Income Tax Assessment Act 1936 is an anti-avoidance provision that treats certain payments, loans, or uses of company assets by shareholders (or their associates) as unfranked dividends — meaning you pay tax on them at your full marginal rate, with no franking credit offset.

In the context of a bucket company, the risk arises when a business owner:

• Borrows money from the bucket company and does not have a complying loan agreement in place
• Uses company funds to pay personal expenses (mortgage, school fees, holidays)
• Has the company pay for assets used personally without arm’s length reimbursement
• Fails to make the minimum annual repayments on an existing Div 7A loan
• Lets trust money reach the wrong people while an unpaid present entitlement (UPE) is outstanding. Where the trust resolves to distribute income to the bucket company but does not physically transfer the cash, a UPE arises. The entitlement itself is no longer the problem it once was, but a payment or loan from the trust to a shareholder of the bucket company, or to their associate, while that entitlement remains unpaid can still produce a deemed dividend under Subdivision EA

What changed in 2026: the Bendel decision

For many years the ATO’s position was that a UPE left unpaid amounted to the company providing “financial accommodation” to the trust, and was therefore a loan for Division 7A purposes. That position no longer stands.

In Commissioner of Taxation v Bendel [2026] HCA 18, decided 10 June 2026, the High Court dismissed the Commissioner’s appeal and held that a private company which simply does nothing about its entitlement does not provide financial accommodation under section 109D(3)(b). A bare UPE is therefore not a loan, and does not by itself create a deemed dividend. The ATO accepted that outcome in its Bendel Decision Impact Statement, published 26 June 2026, and has said there that it will withdraw Taxation Determination TD 2022/11, the determination that set out the former view.

Be careful how you read that last point. As at September 2026, TD 2022/11 is still listed on the ATO Legal Database and marked as under review as a result of the decision, with no withdrawal notice issued. Treat it as on foot but overtaken in practice by the ATO view in the Decision Impact Statement, and check its current status before relying on it.

Three points matter for anyone running this structure, as at September 2026. A UPE that has already been converted into a complying section 109N loan remains a loan and must keep being serviced, because Bendel does not unwind it. Subdivision EA continues to apply to trust payments, loans and debt forgiveness in favour of a shareholder of the corporate beneficiary or their associate. And section 100A continues to apply to reimbursement agreements, taxing the trustee at the top marginal rate with no time limit.

A complying Division 7A loan must:

1. Be documented in a written loan agreement before the lodgement date of the company’s tax return for the year the loan was made
2. Charge interest at or above the ATO’s benchmark interest rate (which changes annually)
3. Be repaid over a maximum term of 7 years (or 25 years if secured by real property)
4. Have minimum annual repayments made each year

Division 7A is not something to navigate without advice. The ATO actively scrutinises these arrangements, and getting it wrong means a tax bill — plus penalties and interest — on money you have already spent. See our detailed guide on the top 5 Division 7A loan traps for a full rundown of what to watch.

You can also review the ATO’s official Division 7A guidance at ato.gov.au.

Who Is a Bucket Company Right For?

A bucket company makes the most sense when all of the following apply:

• You already operate through a family (discretionary) trust. If you do not have a trust, you cannot distribute income to a bucket company in the first place.
• Your trust generates meaningful taxable income — typically $150,000 or more per year after other distributions.
• You have exhausted low-bracket family beneficiaries. Once your spouse, adult children, and other family members are all in higher brackets (or are no longer available), the company absorbs the remainder at 25%.
• You do not need to extract all profits immediately. The strategy works best when you can leave funds inside the company to compound over time, extract during lower-income years, or reinvest within the company.
• You are committed to maintaining proper records and complying with Division 7A requirements every year, without exception.

Who Should NOT Use a Bucket Company?

The bucket company strategy is not right for everyone. You should probably not use one if:

• You operate as a sole trader or partnership without a trust. There is no mechanism to distribute income to a company beneficiary without a trust structure in place.
• Your income is modest or you are in a low tax bracket. If you are already paying 19% or 32.5% tax personally, the saving does not justify the compliance cost and complexity of running an additional entity.
• You need all profits personally each year. If cash flow means you will extract everything immediately via dividend, the tax timing benefit largely disappears.
• You are unwilling or unable to manage ongoing compliance carefully. Division 7A, annual company tax returns, ASIC annual fees, and trust resolution requirements all add cost and administrative burden. Cutting corners creates serious risk.
• Your trust deed does not allow corporate beneficiaries — and you are unwilling to seek a deed amendment. Older trust deeds sometimes restrict beneficiaries to natural persons.

How to Set One Up

Setting up a bucket company is a multi-step process that should be completed well before 30 June each year. Here is what is typically involved:

1. Review your existing trust deed. Your adviser will check whether the deed already allows corporate beneficiaries. Many modern deeds do, but older deeds may require a deed of variation — a formal amendment executed by the trustee.
2. Register a new company with ASIC. The bucket company is registered through the Australian Securities and Investments Commission. You will need to decide on the shareholder structure — often shares are held by the business owner, their spouse, or another family trust to maintain flexibility.
3. Obtain an ABN and TFN for the company. The company will need to lodge its own tax return each year. If the company’s activities are likely to exceed $75,000 turnover, you will also need to register for GST.
4. Add the company as a beneficiary of the trust. This is done via deed amendment if required, or confirmed under the existing deed provisions if it already covers companies.
5. Pass a valid trustee resolution before 30 June. Each year, the trustee must pass a resolution directing income to the bucket company before the financial year ends. Missing this deadline means the distribution cannot be made for that year — there is no fixing it after the fact.
6. Maintain Division 7A compliance from day one. If you ever lend money from the bucket company to yourself or a related party, ensure complying loan agreements are in place before the company’s tax return lodgement date.

Ongoing costs typically include ASIC’s annual company review fee (currently $310 per year for a proprietary company), a separate company tax return preparation fee, and any additional trust deed administration costs.

Capping tax with a bucket company depends on correct business structuring.

Deciding how to hold an investment property is a related structuring question. See our guide to buying an investment property in a trust for the tax, land tax and asset-protection trade-offs.

Frequently Asked Questions

If you are operating through a family trust and want to understand whether a bucket company is the right next step for your structure, we would be glad to talk it through.

General Advice Warning: The information provided in this article is general in nature and does not constitute personal financial, taxation, or legal advice. It has been prepared without taking into account your personal objectives, financial situation, or needs. Before acting on this information, you should consider its appropriateness having regard to your own circumstances and seek professional advice from a qualified accountant or tax adviser. Liability limited by a scheme approved under Professional Standards Legislation.

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The 2025–26 financial year has just closed, and for Australian business owners that means a cluster of critical lodgement deadlines is now immediately in front of you. The Q4 BAS, super guarantee, and PAYG instalment are all due on 28 July 2026 — less than three weeks away. Getting these right matters, because the ATO has made clear it will resume active enforcement of lodgement obligations after several years of pandemic-era leniency.

This guide brings every key ATO deadline for 2025–26 and the year ahead into one place, so you can plan ahead and avoid penalties. We cover BAS, income tax, superannuation, PAYG instalments, FBT, and TPAR — with accurate dates, clear tables, and practical context for each obligation.

Why Tax Lodgement Dates Matter

Missing a lodgement date is not simply an administrative oversight — it has real financial consequences. The ATO can apply a failure-to-lodge (FTL) penalty of one penalty unit for every 28 days a return is overdue, capped at five penalty units. As of 2026, each penalty unit is $330, meaning a return lodged three months late can attract a $1,650 fine before any interest or late-payment charges are added.

Beyond the financial cost, a poor lodgement history affects your relationship with the ATO. Businesses that consistently meet their obligations are far more likely to receive payment arrangements or other concessions if genuine hardship arises later. Businesses with a history of late lodgements are treated with far less flexibility.

For employers, the stakes are even higher. From 1 July 2026, the Payday Super reforms came into effect, meaning superannuation must now be paid at the same time as wages rather than quarterly. This is the most significant change to employer obligations in decades, and the ATO has signalled that it will pursue non-compliant employers actively.

Q4 FY2025–26 Deadlines — Due 28 July 2026

If you are reading this in July 2026, the most urgent dates are the Q4 2025–26 obligations falling on 28 July 2026. This single date carries three separate lodgement and payment requirements for most businesses.

It is worth noting that the Q4 2025–26 super guarantee payment is the last quarterly super obligation under the old system. From 1 July 2026, super must be paid each payday. If you have not yet reviewed your payroll processes to comply with Payday Super, this is an urgent priority.

BAS Lodgement Due Dates — Full Calendar

The Business Activity Statement (BAS) is the primary reporting mechanism for GST, PAYG withholding, and other tax obligations. Most businesses lodge quarterly, though some smaller businesses choose annual lodgement and larger businesses are required to lodge monthly. The standard quarterly due dates for the 2025–26 and 2026–27 years are:

Tax agents registered with the ATO can access an extended lodgement schedule that pushes many of these dates back by four to six weeks. If you are not currently working with a registered tax agent, this alone can provide meaningful breathing room. The ATO’s BAS lodgement page outlines the exact dates applicable to each lodgement category.

Income Tax Return Lodgement Deadlines

Income tax return deadlines differ depending on whether you are lodging yourself or through a registered tax agent, and whether you are an individual, a company, a trust, or a partnership. The table below covers the most common scenarios for the 2025–26 income year.

One important nuance: if you had a tax liability in the prior year (2024–25) and are lodging through a tax agent, your return may still need to be lodged by 31 October 2026 to avoid a failure-to-lodge penalty, even though payment may not be due until May. Your agent will advise you of your specific lodgement date based on your ATO client profile.

If you have not yet lodged your 2024–25 return, the ATO will expect this to be resolved before it will grant concessional lodgement dates for 2025–26. Outstanding prior-year returns should be addressed as a priority.

Superannuation Guarantee Due Dates

Super guarantee obligations changed fundamentally on 1 July 2026. Under the new Payday Super legislation, employers must now pay super at the same time as wages — there is no longer a quarterly payment cycle for wages paid from 1 July 2026 onwards. The current super rate for 2025–26 is 11.5%, rising to 12% from 1 July 2026.

For the 2025–26 year, the final quarterly super guarantee payment was due on 28 July 2026. This covers the April to June 2026 quarter and must be received by employees’ funds by that date — it is not sufficient to merely initiate the payment on that day. Allow at least three business days for processing if paying via BPAY or EFT.

Employers who miss the super guarantee deadline face the Superannuation Guarantee Charge (SGC), which is far more costly than simply paying super late. The SGC is calculated on ordinary time earnings (a broader base than regular super), includes interest of 10% per annum, and adds an administration charge of $20 per employee per quarter. Critically, SGC is not tax-deductible — meaning the cost is effectively higher again on an after-tax basis.

PAYG Instalment Due Dates

PAYG instalments are prepayments towards your annual income tax liability, calculated either as a fixed amount (T7) or as a percentage of your business income (T1). For quarterly lodgers, the instalment is generally included as part of the BAS, so the due dates mirror the BAS calendar above. For annual PAYG instalment payers, the amount is due on 21 October following the end of the income year — for 2025–26, this means 21 October 2026.

If your instalment amount no longer reflects your expected tax liability — for instance, if your income has fallen significantly — you can vary your PAYG instalment amount when lodging your BAS. The ATO charges interest if you vary downward and your actual tax liability turns out to be higher than the varied amount, so this should be done with care and ideally with professional advice.

FBT Lodgement Dates

The Fringe Benefits Tax (FBT) year runs from 1 April to 31 March, which is different from the regular income tax year. The FBT return for the 2025–26 FBT year (1 April 2026 to 31 March 2027) has two key dates depending on how you lodge.

If your business provides any of the following to employees or their associates, you may have an FBT obligation: company cars or car parking, entertainment (meals and functions), laptops or phones used for private purposes, or low-interest loans. Many small business employers do not realise they have an FBT liability until well after the fact. If any of these apply to your business, it is worth reviewing your position with an adviser well before the March 2027 year-end.

Taxable Payments Annual Report (TPAR)

The Taxable Payments Annual Report (TPAR) requires certain businesses to report payments made to contractors during the financial year. Industries currently required to lodge a TPAR include building and construction, cleaning, courier and road freight, information technology, security, investigation and surveillance, and mixed services businesses.

The TPAR for the 2025–26 year (covering payments made between 1 July 2025 and 30 June 2026) is due on 28 August 2026. Businesses must report the name, address, and ABN of each contractor paid during the year, along with the gross amount paid and GST included. The ATO uses TPAR data to cross-match against contractor income tax returns, so accuracy matters. You can lodge your TPAR through the ATO’s online services or through your tax agent.

What Happens If You Miss a Lodgement Date

The consequences of missing a lodgement date are graduated depending on how late you are and how often it has happened before. For a first missed BAS, the ATO may issue a reminder before applying a penalty. For repeated non-lodgement or long periods of non-compliance, penalties can escalate to two or even five times the base amount.

Beyond the failure-to-lodge penalty, unpaid amounts attract the general interest charge (GIC), which compounds daily and currently sits at around 11% per annum. This means a modest GST liability left unpaid for six months can accumulate meaningfully.

The most important thing to do if you have missed a lodgement is to act promptly. Voluntary disclosure — lodging late without waiting for an ATO prompt — is treated more favourably than responding to a demand. The ATO also has a formal penalty remission process for taxpayers who demonstrate genuine remorse, remedial action, and no prior history of non-compliance. A registered tax agent can assist you in negotiating reduced penalties or entering a payment arrangement if you owe a debt you cannot pay immediately.

Frequently Asked Questions

Can I get an extension on my BAS lodgement date?

In some circumstances, yes. Registered tax agents have access to extended lodgement programs that push standard BAS due dates back, sometimes by four to six weeks. Individual extensions may also be granted where a taxpayer can demonstrate extraordinary circumstances — serious illness, natural disaster, or technical issues with the ATO’s own systems. Extensions are not automatic and generally need to be requested before the original due date.

Does lodging my BAS on time mean I have more time to pay?

Lodgement and payment are treated as separate obligations. However, lodging on time without paying does defer the general interest charge until the payment due date, and it avoids the failure-to-lodge penalty entirely. If you cannot pay in full by the due date, contact the ATO before the deadline to arrange a payment plan — this is far better than ignoring the obligation.

My business started in March 2026. Do I need to lodge a full-year BAS?

No. You are only required to lodge BAS returns from the date your business registered for GST. If you registered in March 2026, your first BAS would cover the period from your GST registration date to 30 June 2026, and it would be due on 28 July 2026. You should confirm your reporting cycle with the ATO or your adviser, as new registrants are sometimes assigned to a different lodgement cycle.

What is the difference between PAYG withholding and PAYG instalments?

These are two distinct obligations that often appear on the same BAS. PAYG withholding is the tax you withhold from employees’ wages and remit to the ATO on their behalf — it is their income tax, collected at source. PAYG instalments are prepayments of your own business or investment income tax liability, designed to spread your tax bill across the year rather than paying it all in one lump sum at tax return time.

If you are unsure whether you are meeting your lodgement obligations — or if you want someone to keep track of these dates on your behalf — we would be glad to help.

Frequently Asked Questions

This article contains general advice only and does not take into account your specific circumstances. Please speak with a qualified accountant or tax adviser before making financial decisions.

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To set up a family trust in Australia you have a trust deed prepared, appoint a trustee (often a company), name the appointor and beneficiaries, pay any state stamp duty on the deed, and apply for an ABN and TFN. Done correctly it provides flexible income distribution and asset protection for a family group.

If you run a successful business in Australia and you’re still operating under a structure that puts every dollar of profit directly in your name, you are almost certainly paying more tax than you need to — and leaving your personal assets exposed to unnecessary risk. Setting up a family trust is one of the most powerful and widely used strategies available to Australian business owners, and yet it remains one of the most misunderstood. In this guide, I’ll walk you through exactly what a family trust is, why it matters, and how to set one up the right way — step by step.

Before setting up a family trust, it helps to understand how it compares to other structures available in Australia. Our complete guide to business structures in Australia covers all four main options — sole trader, partnership, company, and trust — so you can be confident a family trust is the right choice for your situation.

What Is a Family Trust?

A family trust — formally known as a discretionary trust — is a legal structure in which a trustee holds and manages assets on behalf of a group of beneficiaries. The defining feature of a discretionary trust is that the trustee has complete discretion over how income and capital are distributed to beneficiaries each year. This flexibility is what makes it such a powerful tax planning tool.

Three parties are involved in every trust arrangement:

• The settlor — the person who establishes the trust by contributing a nominal sum (often $10) and signing the trust deed. The settlor typically plays no ongoing role.
• The trustee — the person or company responsible for managing the trust assets and making annual distribution decisions. This is the active role.
• The beneficiaries — the individuals and entities eligible to receive distributions from the trust each year.

Unlike a company, a trust is not a separate legal entity in the same way. It is a legal relationship — the trustee holds assets on behalf of the beneficiaries, bound by the rules set out in the trust deed.

Watch: Family Trust Benefits Explained

Before diving into the setup steps, Mina walks through the key benefits — and some important caveats — of operating through a family trust in this BusiHealth video:

Why Set Up a Family Trust? The Key Benefits

Tax savings through income splitting. Because the trustee decides each year who receives income and how much, you can direct profits to beneficiaries in lower tax brackets — a spouse, adult children, or even a company. This can legally reduce your overall family tax bill by tens of thousands of dollars each year.

Asset protection. Assets held in a trust are owned by the trustee in their capacity as trustee — not by you personally. In the event of business failure or a lawsuit, your personal creditors generally cannot access trust assets. This makes trusts a valuable shield for accumulated wealth.

Succession planning. A trust doesn’t die when you do. Control of a family trust can be passed to a successor trustee, allowing wealth to be managed across generations without the complexity of probate on trust assets.

Flexibility. Unlike a company (which must pay dividends to all shareholders proportionally) or a partnership (with fixed distributions), a discretionary trust lets you vary the distribution each year. Bad year for one beneficiary? Skip them. Good year for the trust? Maximise the use of low tax brackets across the family group.

To understand how a family trust compares with a company structure, read our company vs trust guide. For an overview of all trust types available to Australian business owners — including unit trusts, bare trusts, and testamentary trusts — see our guide to business structures in Australia.

Step-by-Step: How to Set Up a Family Trust in Australia

Step 1 — Choose a Trustee

The trustee is the most important decision you’ll make. The trustee holds legal title to all trust assets and is personally liable for the trust’s obligations. You have two options:

• Individual trustee — Cheaper to set up, but the trustee is personally exposed to any trust liabilities. If the trustee changes (e.g. death, incapacity), the assets must be transferred to the new trustee.
• Corporate trustee (a company established solely as trustee) — Recommended for most business trusts. Provides cleaner asset protection and makes trustee changes seamless (just change the company’s directors/shareholders rather than re-registering assets). Costs $597 to register with ASIC plus ongoing annual review fees.

For any business trust holding significant assets, a corporate trustee is the professional standard. The ongoing protection it provides outweighs the setup cost. For a full breakdown of the differences and why it matters, see our guide: corporate trustee vs individual trustee for family trusts.

Step 2 — Draft the Trust Deed

The trust deed is the legal document that governs everything: who the trustee is, who the beneficiaries are, how the trust operates, and what happens when it ends. A family trust deed should be prepared by a qualified lawyer or specialist document provider — not sourced from a generic online template.

Key elements of the deed include:

• The name of the trust
• The trustee and settlor details
• The definition of the beneficiary class (as broadly as possible)
• Distribution powers and restrictions
• Investment powers
• The vesting date (Australian trusts must vest within 80 years)

The deed must also be stamped in your state before it takes legal effect. Stamping costs are generally nominal (around $20–$200 depending on the state).

Step 3 — Appoint Beneficiaries

The beneficiary class is defined in the deed. For a discretionary family trust, this typically includes you, your spouse, your children and grandchildren, siblings and their families, and any companies or trusts in which the above hold an interest. Getting this right at the start is critical — adding new beneficiary classes later requires a formal deed variation, which has legal costs and potential stamp duty implications.

Step 4 — Obtain a Tax File Number (TFN) and ABN

Once the trust deed is executed, you need to register the trust with the ATO. This involves:

• Applying for a TFN for the trust via the ATO’s online services
• Applying for an ABN if the trust will be conducting business activities
• Registering for GST if the trust’s annual turnover will exceed $75,000

Step 5 — Open a Trust Bank Account

The trust must have its own bank account — separate from your personal accounts and your trading entity’s accounts. The account must be titled correctly: for example, “John Smith as Trustee for the Smith Family Trust.” Most banks will require a certified copy of the trust deed to open the account.

Step 6 — Transfer Assets Into the Trust

Assets can now be transferred into the trust or acquired by the trust directly. Be aware: transferring existing personal assets into a trust may trigger Capital Gains Tax and stamp duty, depending on the asset type and state. This is why many advisers recommend setting up the trust before acquiring major assets — the trust acquires them directly, avoiding transfer costs.

Costs Involved in Setting Up a Family Trust

Here’s what you can realistically expect to pay:

• Trust deed preparation — $300–$1,500 (depending on complexity and whether a lawyer or specialist provider drafts it)
• Deed stamping — $20–$200 (varies by state)
• Corporate trustee registration — $597 (ASIC registration fee) + $597 annual review fee in subsequent years
• TFN and ABN registration — No government fee (done through ATO online services)
• Bank account setup — Nil to minimal monthly fees
• Accounting and advice — $1,500–$3,000+ for professional setup guidance, including advice on trustee structure, beneficiary class, and tax implications

Total setup cost typically ranges from $2,500–$5,000 for a well-structured family trust with a corporate trustee. Ongoing costs include the annual ASIC fee for the trustee company, accounting and tax return preparation (for both the trust and the trustee company), and any distribution strategy advice.

Common Mistakes to Avoid When Setting Up a Family Trust

• Using a generic trust deed. A poorly drafted deed can limit your ability to add beneficiaries, stream different types of income, or make changes later. Invest in a quality deed from the outset.
• Setting up as an individual trustee. For any business trust, a corporate trustee is almost always worth the extra cost. Individual trustees are personally exposed to trust liabilities and create complexity when the trustee changes.
• Not separating the trust bank account. Running trust funds through personal accounts creates accounting headaches and can create Division 7A issues if the trust distributes to a company beneficiary.
• Waiting too long to set up the structure. Many business owners wait until they’re earning $500,000+ to consider a trust. The reality is that the structure often pays for itself at much lower income levels, especially when income splitting is factored in.
• Forgetting the 30 June distribution deadline. The trustee must document a resolution about how income is distributed before 30 June each year, without exception. See our detailed guide to trust distributions and ATO compliance.

When to Review or Wind Up a Trust

A family trust should be reviewed regularly — at minimum every 3–5 years or when your circumstances change significantly. Key triggers for review include changes in family composition (marriage, divorce, children becoming adults), changes in business structure, significant asset acquisitions, or changes in the tax environment. See the ATO’s trust guidance for current compliance requirements.

Winding up a trust (called “vesting” or “resettling”) involves distributing all trust assets to beneficiaries and closing the structure. This triggers tax consequences — CGT and potentially stamp duty — so it should only be done on professional advice. Most well-structured trusts are designed to run for decades without needing to be wound up.

Advanced Strategy: Family Trust + Bucket Company

Once your trust is generating significant income, the next level of tax planning involves pairing it with a bucket company. By distributing excess income to a company beneficiary at the 25% corporate rate — rather than paying up to 47% at your personal marginal rate — you can generate substantial annual tax savings. The 25% rate applies where the company is a base rate entity, which a bucket company fed by a trading business normally is; where the trust’s income is mainly rent, dividends or capital gains, the company is taxed at 30% instead. We explain this in detail in our family trust and bucket company strategy guide.

Frequently Asked Questions

Can I be the trustee of my own family trust?

Yes — you can act as the individual trustee of your own family trust. However, as noted above, a corporate trustee (a company you control, set up specifically to act as trustee) is the recommended approach for business trusts. It provides cleaner asset protection, easier trustee succession, and clearer separation between your personal affairs and the trust’s activities.

Who can be a beneficiary of a family trust?

The beneficiary class is defined in the trust deed. A typical family trust includes you, your spouse, your children, siblings, and any companies or trusts associated with those individuals. Adult family members in lower tax brackets (low-income spouses, adult children who are studying or are working part-time) are particularly valuable beneficiaries from a tax planning perspective.

Can a family trust own property?

Yes — a family trust can own residential investment property, commercial property, and other real assets. However, owning property in a trust comes with one significant disadvantage: the trust does not qualify for the main residence exemption from Capital Gains Tax. Property is best held in a trust when it is an investment property and when asset protection and income splitting are priorities.

How long does it take to set up a family trust in Australia?

The process typically takes 2–4 weeks from start to finish. Trust deed preparation takes 2–5 business days with a professional provider. Deed stamping can take a few days to a week depending on your state’s revenue office. TFN and ABN registration through the ATO typically takes 5–28 days. Opening a bank account can take 1-5 business days once the deed is available. If you need the trust operational quickly for end-of-financial-year planning, it’s worth engaging a professional who can coordinate all these steps in parallel.

General Advice Warning: The information provided in this article is general in nature and does not constitute personal financial, taxation, or legal advice. It has been prepared without taking into account your personal objectives, financial situation, or needs. Before acting on this information, you should consider its appropriateness having regard to your own circumstances and seek professional advice from a qualified accountant or tax adviser.

Frequently Asked Questions

This article contains general advice only and does not take into account your specific circumstances. Please speak with a qualified accountant or tax adviser before making financial decisions.

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For 2025-26, resident individual income tax rates are: $0 to $18,200 tax-free; $18,201 to $45,000 at 16%; $45,001 to $135,000 at 30%; $135,001 to $190,000 at 37%; and income above $190,000 at 45%. The Medicare levy of 2% applies on top for most residents.

What Are the Australian Tax Brackets for 2025–26?

Every year the Australian Taxation Office (ATO) sets the income tax rates that apply to Australian residents. For the 2025–26 financial year (1 July 2025 to 30 June 2026), the tax brackets remain the same as they were in 2024–25, following the significant changes introduced by the Stage 3 tax cuts that took effect from 1 July 2024.

Here are the official resident tax rates for 2025–26, as published by the ATO:

Note: These rates do not include the Medicare levy of 2%. Source: Australian Taxation Office.

What Changed for 2025–26?

The short answer: the rates themselves did not change. The big shift happened in 2024–25, when the Stage 3 tax cuts came into effect. Those changes were significant and made Australians meaningfully better off compared to the brackets that had applied since 2022–23.

Here is what changed from 2023–24 to 2024–25 (and carries through to 2025–26):

• The bottom marginal rate dropped from 19% to 16% on income between $18,201 and $45,000
• The 32.5% rate was reduced to 30%
• The 30% bracket was extended from $120,000 up to $135,000
• The top 45% threshold moved from $180,000 up to $190,000

If you have not reviewed your tax position since these changes, there is a good chance you are paying less tax than you were two years ago — which is a good reason to compare your most recent return against prior years.

What Is the Tax-Free Threshold?

The tax-free threshold is $18,200. This means that if your total taxable income for the year is $18,200 or less, you pay no income tax at all.

To claim the tax-free threshold, you must be an Australian resident for tax purposes. If you have more than one employer, you should only claim it with your primary employer — otherwise you may end up with a tax debt at the end of the year.

For business owners operating through a company or trust, the tax-free threshold is a powerful planning tool. Trust distributions to beneficiaries who have not used their threshold — including adult children studying or working part-time — can reduce the overall family tax burden significantly. We will come back to this below.

The Low Income Tax Offset (LITO)

On top of the tax-free threshold, lower-income earners are entitled to the Low Income Tax Offset (LITO), which further reduces the amount of tax payable. For 2025–26:

• The maximum LITO is $700
• This full offset applies to taxable incomes up to $37,500
• It reduces by 5 cents for every dollar earned between $37,500 and $45,000
• It then reduces by 1.5 cents for every dollar earned between $45,001 and $66,667
• At $66,667 and above, the LITO is nil

In practical terms, the combination of the tax-free threshold and LITO means that an Australian resident pays no net income tax on the first $21,884 of earnings (because the LITO offsets the small amount of tax otherwise payable on income between $18,201 and the point at which the offset reduces it to zero).

The LITO is automatically applied when you lodge your tax return — you do not need to do anything special to claim it.

Medicare Levy: The 2% You Cannot Forget

The income tax rates in the ATO table above do not include the Medicare levy. The Medicare levy is an additional 2% of your taxable income, and it applies to most Australian residents.

So if your marginal tax rate is 30%, your total rate on that slice of income is actually 32% once Medicare is factored in. At 45%, it is 47%.

There are some exemptions and reductions for very low income earners, but for most business owners and salary earners, the full 2% applies.

Medicare Levy Surcharge (MLS)

If your income is above $93,000 and you do not hold appropriate private hospital cover, you may also be liable for the Medicare Levy Surcharge. This is an additional 1% to 1.5% on top of the standard 2% levy, depending on your income level. For high-income earners without private health insurance, the surcharge often costs more than the private hospital cover itself — worth checking with your adviser.

For current Medicare levy thresholds and exemptions, refer to the ATO’s Medicare levy page.

How to Calculate Your Tax: Worked Examples

The marginal tax system can be confusing. Here are three worked examples to show how tax is actually calculated for different income levels in 2025–26 (before LITO, and excluding Medicare levy). For a quick estimate, try our Australian tax calculators.

Example 1: $75,000 Taxable Income

Example 2: $150,000 Taxable Income

Example 3: $250,000 Taxable Income

These examples highlight an important distinction between marginal rate and effective rate. At $250,000, you are in the 45% marginal bracket — but your effective rate (the percentage of total income going to tax) is only 33.5%. Not all of your income is taxed at 45%. Only the slice above $190,000 is.

Company Tax Rate vs Individual Tax Rates

For business owners, understanding how the company tax rate compares to personal tax rates is fundamental to good tax planning.

For the 2025–26 year, the company tax rate for base rate entities (companies with an aggregated turnover of less than $50 million that derive no more than 80% of their income from passive sources) is 25%. The standard company tax rate for larger businesses is 30%.

Compare this to the personal top marginal rate of 45% plus 2% Medicare levy (47% combined). If you are a business owner taking profits out as personal income, you could be paying almost double the tax rate compared to leaving profits in a company.

This is where choosing the right business structure becomes important. Operating through a company, a family trust, or a combination of both can allow business owners to:

• Pay company tax at 25% as a base rate entity, rather than personal tax at up to 47%
• Retain profits in a lower-taxed entity to fund business growth
• Distribute income to family members in lower tax brackets via a trust
• Access the 50% CGT discount when selling business assets held in a trust for more than 12 months

None of this is tax avoidance. It is legitimate tax planning using structures the Australian tax system explicitly provides for. The key is getting the structure right before you need it — not after.

How Smart Business Owners Use the Tax Brackets

Understanding the brackets is one thing. Using them proactively is another. Here are four strategies business owners commonly use to reduce their effective tax rate by working with the bracket structure.

1. Distributing Income Through a Family Trust

A family trust allows a trustee to distribute income to any eligible beneficiary each year. If your spouse earns $40,000 from part-time work and your trust makes $200,000 in profit, distributing $90,000 to your spouse (up to the top of the 30% bracket before their total income hits $135,000) means that $90,000 is taxed at lower rates than if it all flowed to you at 45%.

Adult children who are studying or working in lower-paid roles can also be beneficiaries. Every dollar distributed to someone in a lower bracket reduces the family’s overall tax bill. The ATO has rules around distributions to minors (the Minors’ tax or “kiddie tax”), but for adult family members, this is a straightforward and well-established strategy.

2. Making Concessional Super Contributions

Concessional (before-tax) super contributions are taxed at 15% inside the super fund rather than at your marginal rate. For someone in the 37% bracket (plus 2% Medicare = 39%), making a $27,500 concessional contribution saves them approximately $6,600 in personal income tax — since the difference between 39% and 15% is 24%, and 24% of $27,500 is $6,600.

The concessional contribution cap for 2025–26 is $30,000. This includes contributions made by your employer (the super guarantee) and any additional contributions you make personally. Business owners who have not maxed their concessional cap in prior years may also be able to use the carry-forward rules to contribute more than $30,000 in a single year.

3. Retaining Profits in a Company at 25%

If your business generates more profit than you personally need to live on, consider leaving the excess in the company rather than paying it out as a dividend or salary. At 25% for a base rate entity, the company tax rate is significantly lower than the top personal rate of 47% (including Medicare). The retained profits can fund future growth, capital expenditure, or be invested — and the tax is deferred until profits are eventually extracted.

This strategy requires careful planning to avoid Division 7A issues (the rules around loans and payments from private companies to shareholders), but it is one of the most powerful deferral strategies available to small business owners.

4. Using a Bucket Company to Cap Trust Distributions

A bucket company is a company set up as a beneficiary of a family trust. When the trust distributes income to the bucket company, that income is taxed at the company rate of 25% where the company is a base rate entity, rather than the individual’s marginal rate. A distribution out of a trading trust keeps its trading character, so the bucket company normally qualifies; if the trust’s income is mainly rent, dividends or capital gains, the rate is 30% instead. The profits sit in the bucket company, and the business owner can choose when (and how) to ultimately extract those funds — through franked dividends, which come with tax credits, or through salary.

For high-income business owners who have already used all available family members’ lower brackets, the bucket company is typically the next step in the tax planning conversation.

What About the 2026–27 Tax Rates?

As of the time of writing, the ATO has published confirmed rates up to 2025–26. For the 2026–27 financial year (the year that started 1 July 2026), official rates will be confirmed and published by the ATO once legislated. Any changes arising from the 2026 Federal Budget will flow through to the rates applicable from 1 July 2026.

If any changes are announced that affect your tax position, your Pinnacle adviser will be in contact proactively. You should not need to wait until your return is lodged to find out whether your tax bill has changed.

Superannuation Guarantee Rate for 2025–26

While not an income tax rate, the super guarantee rate is worth noting here because it directly affects the cost of employing staff and paying yourself as an employer.

For 2025–26, the superannuation guarantee rate is 12% of ordinary time earnings. This is the final step in the legislated super guarantee increases and will remain at 12% from this point forward (unless legislated otherwise).

For business owners who pay their own super as directors or self-employed individuals, ensuring contributions are made before 30 June is essential for claiming the deduction in the current year.

Frequently Asked Questions

What is the tax-free threshold for 2025-26?

The tax-free threshold for 2025–26 is $18,200. Australian residents earning $18,200 or less in total taxable income pay no income tax. Combined with the Low Income Tax Offset (LITO), the effective tax-free amount is slightly higher.

What is the Medicare levy?

The Medicare levy is an additional 2% of taxable income charged on top of the standard income tax rates. It funds Australia’s public health system. Low-income earners may be exempt or receive a reduction. Higher-income earners without private hospital cover may also be subject to the Medicare Levy Surcharge of up to 1.5%.

What is the top marginal tax rate in Australia?

The top marginal income tax rate for 2025–26 is 45%, applying to taxable income above $190,000. Including the 2% Medicare levy, the effective top rate is 47%.

What is the company tax rate for small businesses?

For the 2025–26 year, the company tax rate for base rate entities (turnover under $50 million with passive income under 80%) is 25%. The standard company rate for other companies is 30%.

Do tax rates apply to total income or taxable income?

Tax rates apply to your taxable income, which is your total income minus allowable deductions. This is why deductions matter — every dollar of legitimate deduction reduces the income on which you are taxed, saving you your marginal rate on that dollar.

Are these rates different for non-residents?

Yes. Non-residents for tax purposes face different (generally higher) rates and are not entitled to the tax-free threshold. If you are unsure of your residency status, this is something to clarify with your accountant, as it can significantly affect your tax position. The ATO publishes non-resident tax rates separately.

Get Ahead of Your Tax — Don’t Wait Until June

Most Australians only think about tax rates in July when they are lodging their return for the previous year. By then, it is too late to do anything about it. The strategies that actually reduce your tax bill — trust distributions, super contributions, company structuring, timing of income and expenses — only work when they are implemented before 30 June.

At Pinnacle Accounting & Advisory, we work with business owners throughout the year so that tax planning decisions are made in real time, not retrospectively. If you want to understand what your current structure means for your 2025–26 tax position — or whether there is a better structure available to you — we would be glad to talk through it.

Book a Consultation

Frequently Asked Questions

This article contains general advice only and does not take into account your specific circumstances. Please speak with a qualified accountant or tax adviser before making financial decisions.

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Division 7A is an Australian tax rule that stops private company owners and their associates from taking money out of the company tax-free. If a company loans, pays, or forgives a debt to a shareholder or associate without a complying loan agreement, the ATO treats the amount as an unfranked deemed dividend, taxed at the recipient’s marginal rate.

If you run your business through a company, there is one piece of tax law that catches more business owners off guard than almost anything else: Division 7A. I see it regularly — smart, hard-working people who have been drawing money from their company without realising the tax consequences they are triggering. A loan here, a payment there, a company card used for personal expenses — and suddenly the ATO treats the whole lot as an unfranked dividend taxed at up to 47 cents in the dollar.

Division 7A is not complicated once you understand the mechanics. But it is unforgiving on timing. This guide covers everything: what Division 7A is, who it applies to, how complying loans work, what happens when you get it wrong, and the five strategies that prevent a deemed dividend from arising in the first place.

What Is Division 7A?

Division 7A is a provision in Australian tax law that prevents private company owners and their associates from accessing company funds tax-free. If a company makes a payment, loan, or forgives a debt to a shareholder or associate without a proper loan agreement, the ATO treats it as an unfranked dividend — meaning the full amount becomes taxable income with no franking credits to offset it.

The rules are contained in Division 7A of the Income Tax Assessment Act 1936 (Cth) and have been in place since 1997, progressively tightened as the ATO has closed loopholes. The purpose is straightforward: to stop shareholders extracting company profits without paying tax at their personal marginal rate.

Before Division 7A, business owners could simply “borrow” money from their company indefinitely — no interest, no repayment schedule — effectively enjoying tax-free access to retained company profits. Today, the ATO cross-references company loan accounts with individual tax returns and uses data-matching to identify non-complying arrangements. If your company has a loan account in your name, assume the ATO can see it.

Who Does Division 7A Apply To?

Division 7A applies to private companies — also called closely held companies. Public companies are generally outside scope. The rules catch payments, loans, and debt forgiveness made to:

• Shareholders — including directors who hold shares in the company
• Associates of shareholders — a broad category including spouses, adult children, parents, siblings, related trusts, and companies in which the shareholder has influence
• Former shareholders — in certain circumstances

There are three types of events that trigger Division 7A:

1. Loans — any money advanced from the company to a shareholder or associate, whether formal or informal, including personal expenses paid by the company directly from its bank account
2. Payments — payments made on behalf of a shareholder or associate that are not salary, a declared dividend, or a commercial arms-length transaction
3. Debt forgiveness — where the company writes off or forgives a loan owed by a shareholder or associate; the forgiven amount is treated as a deemed dividend in the year of forgiveness

Family trusts and bucket companies are a common exposure point, although the law here changed significantly in 2026. When a discretionary family trust distributes income to a corporate beneficiary (a “bucket company”) and does not physically pay the distribution in cash, an unpaid present entitlement (UPE) arises. Our explainer on what an unpaid present entitlement is and how it works sets out the mechanics, how the balance is recorded in both sets of accounts, and how to decide whether to pay it out. Following Commissioner of Taxation v Bendel [2026] HCA 18 (decided 10 June 2026), a UPE that the company simply leaves outstanding is not a loan under section 109D and does not by itself produce a deemed dividend. The ATO accepted that outcome in its Bendel Decision Impact Statement, published 26 June 2026.

That does not make these structures risk free. As at September 2026, three exposures remain live. Subdivision EA can still produce a deemed dividend where the trust pays, lends to, or forgives a debt of a shareholder of the bucket company or their associate while the entitlement is outstanding. Section 100A can still tax the trustee at the top marginal rate where the entitlement arises from a reimbursement agreement, and there is no time limit on it. And a UPE that was already converted into a complying section 109N loan remains a loan: Bendel does not unwind it, and it must keep being serviced. Multi-entity structures involving trusts and companies still need active monitoring every income year.

How Does a Division 7A Loan Work?

A Division 7A loan (Div 7A loan) is any financial arrangement where a private company advances money to a shareholder or associate. The critical question is whether it is a complying loan — because a complying loan avoids the deemed dividend outcome entirely.

To be a complying Division 7A loan, all of the following must be satisfied:

• Written agreement: A signed loan agreement must be in place before the lodgement day of the company’s income tax return for the income year the loan was made. A verbal understanding or a ledger entry is not sufficient.
• Benchmark interest rate: The loan must charge interest at least equal to the ATO’s benchmark interest rate. Charging less — or no interest at all — creates an additional Division 7A exposure.
• Maximum loan term: 7 years for an unsecured loan, or up to 25 years if the loan is fully secured by a registered mortgage over real property.
• Minimum annual repayments: A minimum repayment of principal and interest must be made each year before the company’s lodgement date. Failure to make the minimum repayment triggers a deemed dividend equal to the shortfall.

The Benchmark Interest Rate

The ATO sets the Division 7A benchmark interest rate annually, based on the Reserve Bank of Australia’s indicator lending rate for standard variable housing loans. The rate that applies to a loan is fixed in the income year the loan is made and does not change for the life of that loan.

• 2026–27 (current year): 8.77% per annum
• 2025–26: 8.37% per annum
• 2024–25: 8.77% per annum
• 2023–24: 8.27% per annum
• 2022–23: 4.77% per annum

A loan established in 2025–26 is locked in at 8.37%, making minimum repayments lower and more manageable than a loan established in the current 2026–27 year at 8.77%. For the full historical breakdown and how the benchmark is determined, see: Division 7A Interest Rate 2025–26 — What Business Owners Need to Know.

Minimum Yearly Repayments

Every year a Div 7A loan is outstanding, a minimum repayment must be made. The ATO’s Division 7A calculator will compute the exact amount for your situation — or use our Pinnacle Division 7A Loan Calculator for a quick estimate using the current benchmark rate. As a practical illustration: a $100,000 unsecured 7-year loan at 8.37% (the 2025–26 rate) requires a Year 1 minimum repayment of approximately $19,485. Repayments stay roughly constant each year — like a standard principal-and-interest mortgage — until the loan is fully repaid in Year 7.

One important escape hatch: if the full loan amount is repaid before the company’s tax return lodgement date for that income year, no Division 7A issue arises at all. Many business owners use this window deliberately as part of their tax planning. For a full repayment schedule breakdown and what happens if you miss a payment, see: Division 7A Loan Repayments: How They Work and What Happens If You Miss Them.

What Happens If You Get Division 7A Wrong?

The consequence of breaching Division 7A is a deemed dividend — one of the most painful tax outcomes available under Australian tax law, and one that is entirely avoidable with the right planning.

A deemed dividend:

• Is included in your assessable income in full — you pay personal income tax on it in that income year
• Carries no franking credits — unlike a properly declared dividend, you get no tax offset
• Is taxed at your marginal rate — which can be as high as 47% including the Medicare levy
• Does not reduce the company’s retained earnings the way a real dividend would — so you are taxed on the money, and the debt still sits on the company’s books

Beyond the immediate tax cost, a Division 7A breach signals ATO audit risk. If the ATO identifies a Div 7A loan that has not been properly documented, they may look further — reviewing multiple years of loan accounts, company returns, and related entity transactions. Penalties and general interest charge can add substantially to the cost of an undiscovered historical breach.

The deemed dividend is capped at the company’s distributable surplus for that income year — covered in the next section. Do not rely on a low or zero distributable surplus as a safety net: it only limits the current year’s exposure, and the loan balance remains on the books for future years.

Distributable Surplus: How It Limits the Deemed Dividend

Distributable surplus is the concept that caps how large a deemed dividend can be. Even if Division 7A is breached, a deemed dividend cannot exceed the company’s distributable surplus for that income year.

The formula under section 109Y of the ITAA 1936:

Distributable Surplus = Net Assets − (Paid-up Share Capital + Amounts Taken into Account for Franking Balance)

In practical terms: start with the company’s net assets at year end (total assets minus total liabilities, excluding the Div 7A loan payable itself), then subtract paid-up share capital and the company’s franking account balance.

Example: Pinnacle Pty Ltd has net assets of $250,000 at year end. Paid-up share capital is $2. Franking surplus is $48,000. Distributable surplus = $250,000 − $2 − $48,000 = $201,998.

If the director has a $150,000 Div 7A loan that has breached the rules, the deemed dividend is the lower of $150,000 and $201,998 — so the full $150,000 is a deemed dividend. If instead the distributable surplus was only $80,000, the deemed dividend is capped at $80,000 for that year — the remaining $70,000 stays as a loan but will be exposed again in future years if the surplus increases.

Calculating distributable surplus correctly requires working from the company’s verified balance sheet. Small errors in the underlying accounts can significantly distort the result — it is not something to estimate casually. For a dedicated guide, see: Division 7A Distributable Surplus — What Melbourne Business Owners Need to Know.

5 Ways to Avoid a Division 7A Deemed Dividend

Division 7A is entirely avoidable with the right planning. Here are the five most effective strategies:

1. Put a complying loan agreement in place before lodgement day.
   If your company has lent money to you during the income year, a written, signed loan agreement must be executed before the earlier of 30 June or the company’s tax return lodgement date. This is the single most important action. The agreement must specify the benchmark interest rate, maximum loan term (7 or 25 years), and minimum repayment obligations. Do not wait until year end — speak to your adviser when transactions occur.
2. Make minimum yearly repayments on time — in cash.
   Having the agreement in place is only half the job. You must make the minimum annual repayment before lodgement day each year. Repayments must be genuine cash movements — you cannot journal a paper entry. One legitimate and tax-effective strategy: have the company pay a franked dividend to the shareholder, then apply those funds as the loan repayment. This combines the repayment obligation with access to the company’s franking credits.
3. Pay a dividend to clear the debt before year end.
   If the company has sufficient franking credits and retained earnings, declaring and paying a franked dividend before year end can clear or reduce the loan balance. The shareholder receives the dividend (taxed at marginal rate with franking credit offset) and applies it against the outstanding loan. This is most effective when the company’s franking account is high relative to the loan amount. For five dedicated strategies in full detail, see: How to Avoid a Division 7A Deemed Dividend — 5 Strategies That Work.
4. For bucket company entitlements, manage Subdivision EA and section 100A rather than section 109D.
   Where a family trust has an unpaid present entitlement (UPE) to a private company, Bendel means the entitlement itself is no longer a section 109D loan for as long as the company simply leaves it alone. The live risks are different ones. Keep trust funds away from the shareholders of the bucket company and their associates, because a payment, loan or debt forgiveness in their favour while the UPE is outstanding can still trigger Subdivision EA. Make sure the entitlement is a genuine distribution rather than part of a reimbursement agreement, because section 100A still taxes the trustee at the top marginal rate. And if you have already converted a UPE into a complying section 109N loan, keep servicing it: that loan does not revert to being a bare entitlement.
5. Get the structure right before you take money out.
   The most cost-effective approach is preventive. Before drawing money from your company — as a payment, a “loan”, or by paying personal expenses from the company account — speak with your adviser about the correct structure. Salary? Dividend? Complying loan? Each has different tax outcomes. The cost of advice before the transaction is vastly cheaper than the tax consequences of getting it wrong after lodgement day.

Worked Example: The Cost of Getting Division 7A Wrong

Let’s make the stakes concrete. Alex operates his business through Alex Holdings Pty Ltd. The company earns $100,000 net profit in the 2025–26 year, pays 25% company tax ($25,000), and retains $75,000 in after-tax profit.

Over the year, Alex transfers $60,000 from the company account to his personal bank account to cover living expenses. No salary arrangement is in place. No loan agreement is signed. The company’s tax return is lodged in October — by which point it is too late to put the loan on complying terms.

What the ATO does:

• Treats the $60,000 as an unfranked deemed dividend in Alex’s personal return
• Alex pays income tax at his marginal rate of 47% (including 2% Medicare levy): $28,200 personal tax bill
• No franking credit offset is available — had this been a properly declared franked dividend, the $25,000 company tax already paid would have provided a credit
• The $60,000 also remains as a loan on the company’s books — the deemed dividend did not extinguish the debt

Done properly with a complying 7-year loan at 8.37%:

• Written loan agreement in place before the return is lodged
• Year 1 minimum repayment: approximately $11,690
• Alex pays this from personal funds or via a franked company dividend applied against the loan
• No deemed dividend arises. The loan reduces systematically over 7 years.
• Interest in Year 1: approximately $5,022 — the only taxable component, generating tax of roughly $2,360 at 47%

The difference: $28,200 personal tax done wrong, versus approximately $2,360 interest tax done properly in Year 1 — a $25,840 difference from one decision about documentation. This is exactly the kind of situation I manage at Pinnacle Accounting & Advisory. The rules are not complicated; the window to act closes on lodgement day.

Following the High Court’s decision in Bendel, see whether your bucket company UPE still needs a Division 7A loan agreement.

Division 7A benchmark interest rates by year

Every complying Division 7A loan must charge at least the ATO benchmark interest rate for the income year in which the loan was made. The rate is set at the start of each income year and stays fixed for the life of that loan, so the rate that applies depends on when the loan was made, not when it is repaid.

Always confirm the current rate directly with the ATO at ato.gov.au, as it is updated annually.

Common Division 7A traps for business owners

In our experience working with private company owners, the same Division 7A traps come up again and again. These are the ones worth watching for:

1. Taking cash from the company without formalising it

A director transfers funds from the company account to their personal account, not as salary and not as a declared dividend. At year end this appears in the accounts as a loan to the director and triggers Division 7A. Without a complying agreement in place before the return is lodged, it becomes a deemed dividend.

2. Forgetting to put the loan agreement in writing

A verbal understanding between director and company is not sufficient. The ATO requires a written agreement in place before the earlier of the lodgement date or the due date of the company return. Miss that window and the loan becomes a deemed dividend, even where repayment was always intended.

3. Missing a minimum annual repayment

Division 7A requires a repayment every single year, not just when funds are available. A missed or short repayment creates a deemed dividend equal to the shortfall for that income year, compounding the problem rather than rolling it forward.

4. Trust distributions owed to a private company

Where a trust distributes income to a bucket company but does not pay the cash, the resulting unpaid present entitlement is no longer a section 109D loan in its own right, following Bendel. The trap is what happens next. If the trust then pays money to, lends to, or forgives a debt of a shareholder of the bucket company or their associate while that entitlement is still outstanding, Subdivision EA can still deem a dividend. This remains a common trap in family trust and bucket company structures and needs active review each year. We unpack exactly what the High Court did and did not change, and where owners are still getting caught, in our guide to Bendel, your bucket company UPE and the drawings that were never safe.

5. Assuming Division 7A only applies to directors

Division 7A applies to shareholders and their associates. Associates include spouses, adult children, parents, siblings, and companies or trusts connected to them. A loan from your company to your spouse can trigger Division 7A just as much as a loan to you directly.

Because these traps usually sit inside multi-entity arrangements, getting the business structure right from the outset and keeping loan accounts and trust distributions monitored through a Virtual CFO or ongoing business advisory engagement is the most reliable protection against an unexpected deemed dividend.

This article contains general advice only and does not take into account your specific circumstances. Please speak with a qualified accountant or tax adviser before making financial decisions.

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A business budget is a forward-looking financial plan that sets your expected income, expenses and profit over a period, usually a year. Building one gives you targets to measure against, early warning of cash flow problems, and the confidence to make decisions based on numbers rather than guesswork.

Business Budgeting 101: How to Build a Budget Your Business Will Actually Follow

Ask most small business owners if they have a budget and they’ll say yes. Ask them when they last looked at it and you’ll get a sheepish pause.

Most business budgets get set in July, reviewed once, and then quietly forgotten. By September, reality has diverged so far from the spreadsheet that comparing the two feels pointless. So the budget gets filed away and business owners go back to managing by gut feel — until the cash is tight and they’re not sure why.

I’ve seen this with dozens of Melbourne business owners. And the problem usually isn’t that they’re bad at running their business. It’s that they built the wrong kind of budget. In this post, I’m going to show you how to build a budget your business will actually follow — one that’s realistic, useful, and genuinely helps you make better decisions.

Why Most Business Budgets Fail

There are a few predictable reasons why business budgets don’t work.

They’re built on wishful thinking. Revenue projections that are 30% higher than last year with no clear plan to get there. Expense lines that assume everything runs smoothly. Best-case-scenario budgets that fall apart the moment reality intervenes.

They’re too detailed in the wrong areas. Some business owners build budgets with 80 expense categories, then lose the will to maintain them within a fortnight. A budget that takes two hours to update each month won’t get updated. Keep it simple enough that the discipline is sustainable.

They’re not connected to decisions. A budget that sits in a spreadsheet and gets compared to actuals with no consequence — no action, no adjustment — is just a historical curiosity. The point of a budget is to trigger decisions: to spend, to save, to hire, to hold off.

They’re annual, not rolling. The business world doesn’t run on a July-to-June cycle. Things change. A budget that gets locked in once a year and never adjusted is often worse than no budget at all — it gives you false confidence.

Start With Revenue: Be Honest, Not Optimistic

The most important line in your budget is your revenue forecast. Get this wrong and everything downstream is wrong too.

Build your revenue forecast from the bottom up, not the top down. Don’t start with “we want to grow 25% this year.” Start with: how many clients do we currently have? What’s our average monthly revenue per client? What’s our realistic churn rate? How many new clients can we realistically acquire each month, based on what we’ve actually done in the past?

Build three scenarios: conservative (what happens if things are slower than expected), base case (what you genuinely expect), and optimistic (what happens if things go well). Your spending decisions should be based on the conservative or base case — not the optimistic one. Too many business owners hire and spend based on the optimistic scenario and then find themselves in trouble when revenue comes in at the base case.

If your business is seasonal, model that. A business that does 60% of its revenue between October and February needs a different cash flow plan than one with flat monthly revenue. Build the seasonality into your numbers.

Budget Your Costs in Two Layers: Fixed and Variable

Separate your costs into two buckets:

Fixed costs are the ones that exist regardless of how much revenue you generate: rent, insurance, subscriptions, base salaries. These are your floor — the minimum the business costs to run. Know this number cold. It tells you your break-even point.

Variable costs move with revenue: contractor costs, materials, merchant fees, commission, delivery costs. These should be budgeted as a percentage of revenue rather than a fixed dollar amount, so your budget automatically adjusts as your revenue moves.

Once you know your fixed costs and your variable cost percentage, you can calculate the minimum revenue you need to hit break-even — and then build your profit target on top of that. This turns your budget from a passive record into an active tool. You know exactly what you need to sell each month to cover costs, and anything above that is contributing to your profit target.

Build in a Cash Flow Layer, Not Just P&L

Here’s a mistake I see constantly: business owners budget for profit but not for cash. These are different things.

Your P&L budget tells you whether the business will be profitable. Your cash flow budget tells you whether the business will have money in the bank when it needs it.

The gap between the two is caused by timing: you might invoice a client in June but not collect until August. Your business might buy stock in September to prepare for a November peak. Your BAS, tax instalments, and super payments fall at specific times of the year and can cause major cash crunches if you haven’t planned for them.

At a minimum, your cash flow budget should account for:

• When you actually expect to receive cash (not when you invoice)
• When major bills fall due (insurance renewals, equipment finance, payroll tax)
• ATO obligations — BAS, PAYG instalments, income tax — by month
• Superannuation — quarterly, not monthly, so the impact is lumpy
• Any loan repayments

If you’d like help building a cash flow plan alongside your budget, that’s something I work through with clients as part of our advisory work.

Review Monthly — and Actually Do Something With It

A budget review should not be a passive exercise. Each month, compare your actuals to your budget and ask:

• Revenue: Are we tracking ahead, behind, or on target? If behind, what’s the cause — fewer clients, lower average spend, delayed projects?
• Gross margin: Is it in line with what we expected? If not, are our costs of delivery higher than budgeted, or is our pricing wrong?
• Expense lines: Are there any categories running significantly over budget? Are there savings we’re not capturing?
• Net profit: Are we on track for our profit target for the year? If not, what needs to change?

The answer to each of these questions should trigger an action — even a small one. A budget that drives no decisions is just a report. You want it to be a steering wheel.

Make the Budget a Team Conversation

If you have staff — especially managers or senior employees — involving them in the budget process transforms compliance into ownership. When your operations manager knows the labour budget and understands why it matters, they make better resourcing decisions. When your sales lead knows the revenue target and what achieving it means for the business, they approach it differently.

You don’t need to share everything. But sharing the numbers that are relevant to each person’s area creates accountability and alignment that you simply can’t get any other way.

A business where the owner is the only one who knows the financial targets is a business that’s entirely dependent on the owner to make every decision. And if that sounds familiar — it’s also the kind of business that can’t run without you.

Your Budget Is a Living Document — Treat It That Way

If your business changes significantly mid-year — you win a major contract, lose a key client, hire faster than planned, or face an unexpected cost — update your budget. Don’t keep measuring reality against a plan that’s no longer relevant. Revise the forecast, understand the implications, and make decisions from the new position.

Quarterly reforecasting is a discipline that separates businesses that manage proactively from ones that manage reactively. It takes a few hours each quarter but pays back in confidence, clarity, and better decisions throughout the year.

A budget isn’t a contract you sign in July and live by come what may. It’s a financial plan that should evolve as your business does. The goal is always the same: more clarity, better decisions, and a business that makes the money it should.

Want help building a budget that actually works for your business? Book a complimentary consultation with Mina — I’ll show you a simple framework that takes the guesswork out of your numbers. [Book your complimentary consultation →]

A budget is only as good as the cash behind it. If your forecast keeps showing a profit that never reaches the bank account, the problem is usually the debtors ledger, and our guide to debtor management and bad debt write offs explains how to fix it.

Frequently Asked Questions

This article contains general advice only and does not take into account your specific circumstances. Please speak with a qualified accountant or tax adviser before making financial decisions.

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A Virtual CFO is an outsourced chief financial officer who gives your business high-level financial strategy, cash flow management, budgeting, forecasting and reporting, without the cost of a full-time executive. For growing businesses it means having an experienced financial mind in the room before the big decisions are made.

What Is a Virtual CFO and Does My Business Need One?

When most small business owners hear “CFO” — Chief Financial Officer — they think: that’s for big companies. Listed corporations. Businesses with 200 staff and a finance department.

And for a long time, they were right. A full-time, senior CFO costs $200,000 to $400,000 a year in salary and super. For most SMBs, that’s not a realistic hire.

But here’s the thing: the financial leadership that a CFO provides — strategic planning, cash flow management, profit improvement, financial reporting, scenario modelling, funding advice — is exactly what growing small businesses need. They just haven’t had access to it at a price that makes sense.

That’s what a Virtual CFO (VCFO) is. It’s senior financial expertise, available on a part-time or fractional basis, at a fraction of the cost of a full-time hire. And for the right business, it can be genuinely transformational.

What Does a Virtual CFO Actually Do?

A Virtual CFO is not a bookkeeper. It’s not your regular accountant doing your tax return. It’s a senior financial adviser who works closely with you — the business owner — to give you the financial leadership and strategic insight that would normally only be available to larger businesses.

Depending on your needs, a VCFO typically covers:

• Financial reporting and analysis: Monthly management accounts, KPI dashboards, and plain-English commentary on what the numbers mean for your business
• Cash flow planning and management: Rolling cash flow forecasts, identifying cash gaps before they become crises, and building the buffers your business needs
• Budgeting and forecasting: Annual budgets, quarterly reforecasts, and scenario modelling for major decisions
• Profit improvement: Analysing your margins by service line or product, identifying where the business is and isn’t profitable, and recommending concrete changes
• Business structure and tax planning: Working with your accountant (or acting as your accountant) to ensure your structure is optimised for tax and asset protection
• Funding and finance: Preparing for bank lending, managing lender relationships, and structuring finance facilities correctly
• Strategic financial advice: Providing financial input on major decisions — hiring, expanding, acquiring, exiting

Essentially, a VCFO makes sure the financial side of your business is not just compliant — but genuinely working for you.

How Is a Virtual CFO Different From My Accountant?

This is a fair question and worth addressing directly.

Your accountant — if they’re operating as a traditional compliance firm — is primarily focused on historical reporting: preparing your tax return, lodging your BAS, keeping you compliant with the ATO. That work is essential. But it’s backward-looking.

A CFO function — whether full-time or virtual — is forward-looking. It’s about where the business is going, what decisions need to be made, and what the financial implications of those decisions are. It’s proactive, not reactive.

At Pinnacle, I work with clients across both functions. For some clients, the advisory and tax work I do goes well beyond traditional accounting — it’s effectively a VCFO engagement built into how we work together. For others, we formalise it as a specific VCFO arrangement with more structured reporting and more regular contact.

The key distinction is this: your compliance accountant helps you report on what happened. Your VCFO helps you decide what happens next.

What Stage of Business Needs a Virtual CFO?

Not every business needs VCFO services — and I’d rather be honest about that than oversell it.

If your business is turning over less than $500,000 a year and your finances are relatively straightforward, good bookkeeping and a proactive accountant are usually enough. You need your numbers clean, your tax managed well, and a clear picture of cash flow. That’s achievable without a dedicated CFO function.

The need for VCFO services tends to emerge in a few scenarios:

• Rapid growth: Revenue is growing quickly but cash is tight, and the owner can’t keep up with the financial complexity. This is the classic growth trap — more revenue, more stress, less clarity.
• Preparing for funding or investment: A bank or investor will want proper financial models, forecasts, and management accounts. Most business owners don’t know how to prepare these, and their regular accountant may not be set up to present them in the format required.
• Considering a major business decision: Acquiring another business, opening a new location, launching a new service line. These decisions have significant financial implications that need to be properly modelled before you commit.
• Profit isn’t matching revenue: Revenue is strong but the business isn’t making the money it should. A VCFO can identify where the profit is leaking — often something the business owner can’t see clearly from inside the business.
• The owner is overwhelmed by financial management: When the financial side of the business is taking too much of the owner’s time and mental energy, and major decisions are being made without proper data to back them up.

A good rule of thumb: if your business is turning over $1M or more and you’re making major financial decisions based on gut feel rather than data, you need more financial leadership than a compliance accountant can provide.

What Does a Virtual CFO Cost in Australia?

VCFO pricing varies depending on scope, frequency of engagement, and the adviser’s experience. In Australia, you can expect:

• Entry-level VCFO packages: $1,500–$3,000 per month — typically monthly management reporting, basic cash flow oversight, and a monthly advisory call
• Mid-tier VCFO engagement: $3,000-–$6,000 per month – more comprehensive reporting, budgeting and forecasting, regular advisory sessions, involvement in key decisions
• High-engagement VCFO: $6,000+–$12,000+ per month — near-full-time equivalent support, deep strategic involvement, finance team oversight, investor-ready reporting

Compared to a full-time CFO at $250,000+ per year — even a high-engagement VCFO represents significant savings. And you get the added benefit of flexibility: you only pay for what you need, and you can scale the engagement up or down as your business changes.

For most growing SMBs, the right entry point is a mid-tier engagement — enough to get meaningful financial oversight and genuine advisory support, without paying for more than the business currently needs.

What Real VCFO Support Looks Like at Pinnacle

At Pinnacle, my VCFO work is built around giving business owners genuine financial clarity and strategic support — not just more reports to scroll past.

For clients where I operate in a VCFO capacity, that typically means:

• Monthly management accounts with clear narrative commentary – what the numbers mean, not just what they are
• A rolling cash flow forecast so you always know where the business is heading over the next three months
• Annual budgeting and quarterly reforecasting
• Monthly advisory sessions where we review performance, discuss upcoming decisions, and identify opportunities
• Tax planning integrated into the financial management throughout the year – not bolted on at the end
• Ad hoc support when major decisions come up – lending, restructuring, acquisitions, growth planning

Because I’m a CPA and Chartered Tax Adviser, the financial advisory and tax planning are integrated rather than siloed. You’re not paying separately for an accountant and a CFO — the strategic financial advice and the tax planning reinforce each other. Which is how it should work.

If you’re at the stage where your business needs more than compliance, and you want a senior financial partner who’s genuinely invested in your success – that’s exactly what a well-run VCFO engagement looks like in practice.

Wondering if a Virtual CFO is right for your business? Book a complimentary consultation with Mina — I’ll give you an honest assessment of where your business is and what level of financial support will actually make a difference. [Book your complimentary consultation →]

Frequently Asked Questions

What does a Virtual CFO actually do?

A Virtual CFO provides strategic financial oversight to businesses that don’t need a full-time Chief Financial Officer. This includes financial reporting and analysis, cash flow forecasting, budgeting, business structuring advice, and support during major financial decisions — buying equipment, taking on debt, or restructuring. The goal is to give you the financial intelligence a large-business CFO provides, at a fraction of the cost.

How is a Virtual CFO different from a bookkeeper or accountant?

A bookkeeper records and reconciles transactions. A compliance accountant prepares your tax returns and BAS. A Virtual CFO sits above both — they use your financial data to provide forward-looking strategic insight. What do the numbers mean? Where is the business heading? What decisions should you make? You need accurate books as the foundation, and a Virtual CFO turns those books into a roadmap.

When should a small business hire a Virtual CFO?

Most small businesses benefit from Virtual CFO services when they’ve outgrown basic compliance, when they’re making significant financial decisions, when they want proper budgeting and forecasting, or when they feel like they’re flying blind on their numbers. As a guide: if your business turns over $500,000+ annually and you don’t have a clear picture of your cash flow, margins, and financial trajectory — a Virtual CFO adds real value.

How much does a Virtual CFO cost in Australia?

The cost varies by scope and engagement frequency, but a Virtual CFO arrangement is almost always far more cost-effective than a full-time CFO (which can cost $200,000+ per year). Most small businesses access Virtual CFO services on a fixed monthly retainer covering agreed deliverables — typically management reporting, financial analysis, and advisory meetings. Book a no-obligation consultation to understand what makes sense for your situation.

Can a Virtual CFO help with tax planning?

Absolutely — and this is one of the most valuable things they do. The best tax outcomes come from planning throughout the year, not scrambling at the end of June. A Virtual CFO monitors your financial performance and identifies opportunities to reduce your tax burden legally and proactively. At Pinnacle, tax planning is integrated into everything we do — not treated as an afterthought.

Frequently Asked Questions

This article contains general advice only and does not take into account your specific circumstances. Please speak with a qualified accountant or tax adviser before making financial decisions.

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To build a business that runs without you, you need documented systems, a capable team, clear numbers and delegated decision-making, so the business depends on processes rather than your daily involvement. This turns a job that owns you into an asset that can grow, run smoothly and eventually be sold.

How to Build a Business That Runs Without You

Most small business owners I work with have the same problem. They’ve built something that makes good money — but they can’t step away from it. Take a week off and things fall apart. Take two weeks off and they come back to a mess. That’s not a business. That’s a job with extra paperwork. Reducing owner dependence is also one of the biggest levers in how to value a business, because buyers pay more for a business that runs without you.

The goal of building a real business — one that can scale, one that has genuine value if you ever wanted to sell it, one that doesn’t require you to be physically present every day — comes down to three things: systems, the right people, and the right financial structure. Let me walk you through each one.

Why Most Small Businesses Can’t Run Without Their Owner

It usually starts innocently enough. You’re the founder, you know how things should be done, so you just do them yourself. Then you hire someone but it’s faster to do it yourself than explain it. Then you’ve got ten staff but every decision still flows through you.

Here’s the honest truth: if your business can’t function without you for two weeks, you don’t own a business — you own yourself a job. And a job you can never really leave.

This matters financially too. A business that depends entirely on one person — usually the owner — is worth significantly less than one that operates independently. Buyers pay multiples for systems and repeatable revenue. They discount heavily for key-person risk. So building a business that runs without you isn’t just about your lifestyle. It directly affects how much your business is worth.

Start With Systems and SOPs (Standard Operating Procedures)

The first step is documenting how your business actually works. Not how you think it works — how it actually works, day to day.

Start with your most repeated processes. How does a new client get onboarded? How does a job get quoted, approved, and delivered? How does an invoice get raised and followed up? These are the things you do on autopilot — which is exactly why they need to be written down. You can’t delegate what only lives in your head.

A good SOP doesn’t need to be a 40-page manual. A simple checklist with clear steps, responsibilities, and expected outcomes is often enough. Video walkthroughs work brilliantly for visual tasks. The goal is that someone else — ideally someone you haven’t even hired yet — could pick it up and do the job to your standard.

Once your core processes are documented, review them quarterly. Businesses change. Your SOPs should too.

Hire to Replace Yourself, Not Just to Help Yourself

There’s a difference between hiring someone to take work off your plate and hiring someone to genuinely own a function of your business. Most small business owners do the first. The ones who build scalable businesses do the second.

Think about which parts of your role you should be replacing first. Usually it’s the technical delivery work — the thing you started doing before you became a business owner. If you’re a plumber who now runs a plumbing company, you probably still do the complex jobs yourself. That’s the first thing to hand off. Then it’s administration, scheduling, customer service. Eventually, if you’re ambitious enough, even sales and operations management.

The hardest hire for most business owners is their first manager — someone who manages other people so you don’t have to. It feels expensive. It is expensive. But it’s the hire that unlocks everything else.

Get the hiring wrong and you’ll spend more time managing the manager than you saved. Get it right and you’ll wonder why you waited so long.

Get Your Financial Structure Right Before You Scale

Here’s where I come in — and where most business owners miss a critical step.

Many business owners focus on systems and people but never get their financial structure right. They’re still running everything through a sole trader or a basic Pty Ltd, and as the business grows, they’re handing more and more profit straight to the ATO with no asset protection in place.

Before you scale, it’s worth asking: is your business structured in a way that protects what you’re building? Do you have the right entities in place to distribute profits tax-effectively? Is your personal wealth protected if something goes wrong in the business?

The right structure — whether that’s a trading company, a family trust, a holding company, or a combination — depends on your specific circumstances. But getting it right before you scale is much cheaper and cleaner than trying to restructure a business that’s already generating $2M a year. The tax and stamp duty costs of restructuring later can be significant.

I work with a lot of Melbourne business owners who’ve been running the same structure for ten years simply because no one ever told them there was a better option. That’s money left on the table every single year.

Use Your Numbers to Drive Decisions, Not Just Track History

A scalable business needs a management accounting function — even if that’s just a monthly conversation with your accountant about the numbers that matter.

Too many business owners look at their P&L once a year when tax returns are due. By then, it’s too late to do anything about it. You need to know your gross margin by service line. You need to know your labour productivity. You need to know where your cash is going and whether your growth is actually profitable or just busy.

When you can read your own numbers and use them to make decisions — which jobs to take, which clients to cut, whether to hire now or wait — you stop running on gut feel and start running a proper business. That’s when you can step back, because the business has its own dashboard and doesn’t need you to sense-check everything.

The Role of a Business Adviser in Building a Scalable Business

A good accountant or business adviser should be doing more than lodging your BAS and tax return. If your accountant isn’t talking to you about structure, profitability, cash flow, and your plans for the next three to five years — you’re getting compliance, not advice.

At Pinnacle, I work with Melbourne business owners who are serious about building something real. That means getting your structure right, helping you understand your numbers, identifying where you’re leaving money on the table, and planning proactively — not just cleaning up at year-end.

If you’re at the stage where you want to start building a business that doesn’t rely on you being there every day, the financial and structural foundations need to be solid. Everything else — the systems, the team, the processes — works better when the underlying business is set up correctly.

Where to Start

If you’re serious about building a business that can run without you, start here:

1. Audit your current role. Write down everything you do in a week. Categorise it: what must only be you, what could be delegated with a system, what could be automated.
2. Document one process this week. Pick the most repeated task in your business and write it down, step by step.
3. Review your structure. Talk to an adviser about whether your current entity setup is right for where you’re headed — not just where you are now.
4. Set up a monthly numbers review. Even 30 minutes a month with your accountant looking at the right metrics will change the way you run your business.

Building a business that runs without you doesn’t happen overnight. But it starts with a decision — and then the right foundations.

Ready to build a business that works for you, not the other way around? Book a complimentary consultation with Mina to talk through your structure, your numbers, and your next stage of growth. [Book your complimentary consultation →]

Frequently Asked Questions

This article contains general advice only and does not take into account your specific circumstances. Please speak with a qualified accountant or tax adviser before making financial decisions.

Building a business that runs without you is exactly the kind of work business advisory in Melbourne supports.

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A profit and loss statement shows your business income, expenses and resulting profit or loss over a period. To read it, start with revenue at the top, subtract cost of goods sold to get gross profit, then subtract operating expenses to reach net profit, comparing each line against prior periods and your budget.

How to Read Your Profit and Loss Statement (And Actually Use It)

Most business owners I meet have a profit and loss statement sitting somewhere in their accounting software. Some of them look at it occasionally. Very few of them actually use it to run their business.

That’s a problem — because your P&L is one of the most powerful tools you have. When you know how to read it and what to look for, it tells you exactly where your business is making money, where it’s leaking money, and what decisions you need to make. When you ignore it, you’re running blind.

This post is for business owners, not accountants. I’m going to explain what a profit and loss statement actually tells you — in plain language — and show you how to use it to make better decisions every month.

What a Profit and Loss Statement Actually Shows You

Your P&L (also called an income statement) summarises your business’s financial performance over a period of time — usually a month, a quarter, or a financial year. It answers a simple question: did your business make money, and where did it come from (or go)?

The basic structure works like this;

• Revenue (Sales) — the total money your business brought in
• Less: Cost of Goods Sold (COGS) — the direct costs of delivering your product or service
• = Gross Profit — what’s left after your direct costs
• Less: Operating Expenses — rent, wages, marketing, subscriptions, insurance — the overhead costs of running the business
• = Net Profit (or Net Loss) — what the business actually made after everything

That’s the skeleton. Now let’s talk about what it actually means for you.

Gross Profit Margin: The Number That Tells You If Your Pricing Is Right

Your gross profit margin is your gross profit expressed as a percentage of revenue. It tells you how much of every dollar you earn stays in the business before you pay your overheads.

For example: if you generate $500,000 in revenue and your COGS is $300,000, your gross profit is $200,000 — that’s a 40% gross margin.

Why does this matter? Because your gross margin is a direct reflection of your pricing and your direct cost control. If your gross margin is shrinking over time, one of two things is happening: your prices are too low, or your delivery costs are going up. Either way, you need to know about it during the year — not at tax time.

Every industry has a benchmark gross margin. If you’re well below yours, that’s the first conversation to have. At Pinnacle, one of the first things I do with a new client is look at their gross margin by service line — and for most of them, we find that some jobs or service types are barely profitable once you account for the actual cost of delivery.

Operating Expenses: Where Most Business Owners Stop Paying Attention

Below the gross profit line, you’ll see your operating expenses — all the fixed and semi-fixed costs of running the business. This is where a lot of money quietly disappears.

The discipline here is to review each expense line every month, not just the total. Ask yourself:

• Is this expense generating revenue or protecting the business? If not, does it need to be there?
• Are there subscriptions or services you’re paying for that you’re not actually using?
• Has any line item grown significantly compared to last month or last year? Why?

The business owners who do this regularly find savings almost every time. Not always big ones — sometimes it’s $200 a month in software nobody uses, or a supplier contract that auto-renewed at a higher rate. But across twelve months, small leaks become large losses.

Equally important: don’t just try to cut expenses. Some expenses are investments. Marketing that generates $10 in revenue for every $1 spent is an expense you should be increasing. The P&L is not a cost-cutting exercise — it’s a profitability exercise.

Net Profit vs Cash in the Bank: Understanding the Difference

Here’s the thing that trips up almost every business owner I work with for the first time: profit and cash are not the same thing.

Your P&L might show a healthy net profit — but your bank account might be nearly empty. How does that happen?

Several ways. You might have revenue that’s been invoiced but not yet collected (debtors). You might have bought stock or equipment (which doesn’t show up on your P&L as an expense in the way you’d expect — it’s a balance sheet movement). You might have loan repayments coming out of your account that aren’t shown on the P&L. Or your profit might be real, but the tax bill on it is about to arrive.

This is why a P&L alone doesn’t tell the whole story. You also need to look at your cash flow statement and your balance sheet. But starting with the P&L — and understanding it properly — is the foundation.

If you’d like to understand the full picture of management accounting for your business, that’s a conversation I have with my clients regularly.

How to Actually Use Your P&L Each Month

Reading your P&L shouldn’t be a passive exercise. Here’s a simple monthly routine that takes about 30 minutes and will genuinely improve how you run your business:

1. Pull your P&L for the month and year-to-date. Most accounting software (Xero, MYOB, QuickBooks) can produce this in seconds.
2. Compare to last month and the same month last year. Look for anything that’s moved more than 10% in either direction. Ask why.
3. Check your gross margin. Is it stable? Is it improving or declining?
4. Scan the expense lines. Any surprises? Any categories running higher than expected?
5. Calculate your net profit margin. Net profit divided by revenue. Is it where you need it to be to pay yourself properly, service any debt, and have something left over?
6. Make one decision based on what you see. It doesn’t have to be dramatic — but the numbers should be driving at least one action each month.

This is the difference between using your accounts as a management tool and using them purely for compliance. Compliance keeps you out of trouble with the ATO. Management accounting helps you actually build wealth.

When to Get Help Reading Your Numbers

If you look at your P&L and still aren’t sure what it’s telling you — that’s completely normal, and it’s fixable. This isn’t something you have to figure out alone.

Part of what I do with my clients is go through the numbers together, in plain English, until they actually understand their business financially. Not so they become accountants — but so they can make good decisions. Because the business owner who understands their margins, their expense ratios, and their profit trends makes fundamentally better decisions than one who doesn’t.

If you’ve been avoiding your numbers because they feel overwhelming, let’s change that. A one-hour conversation can go a long way.

Want to understand your numbers and actually use them to grow? Book a complimentary consultation with Mina — we’ll look at your P&L together and identify what it’s telling you about your business. [Book your complimentary consultation →]

If the profit on the page never seems to reach the bank account, the answer is usually sitting on the balance sheet rather than the profit and loss. Our guide to working capital explains where that cash goes and how to release it.

Frequently Asked Questions

This article contains general advice only and does not take into account your specific circumstances. Please speak with a qualified accountant or tax adviser before making financial decisions.

Reading your numbers is step one; acting on them is where business advisory in Melbourne adds value.

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Structuring your business to build wealth means separating the business that earns income from the entities that hold wealth, using a mix of a trading company, a family trust and often a bucket or holding company. The right structure caps tax, protects assets from business risk, and lets you retain and grow profits over time.

Most small business owners are building an income. Very few are building wealth.