When a company is held inside a family trust, the trust owns the shares and receives the franked dividends the company pays. A discretionary trust generally cannot pass those franking credits through to its beneficiaries unless it has made a family trust election, because without one the beneficiaries fail the 45-day holding period rule. Interposed bucket or holding companies in the group usually need an interposed entity election too.

Plenty of Melbourne business families run a perfectly good structure: a family discretionary trust that owns the shares in a trading or investment company, with a bucket company sitting in the background to hold retained profits. The structure looks right. The problem only shows up at tax time, when the franking credits attached to the company’s dividends quietly fail to reach the people they were meant to benefit. This article, written by Mina Baselyous (CPA, CTA and Registered Tax Agent), explains why that happens and how a family trust election fixes it.

This guide sits alongside our broader explainer on the family trust election and interposed entity election, and our complete guide to trusts in Australia. Here we focus specifically on the franking-credit angle when a company is held within a trust.

What “a company held in a family trust” actually means

Holding a company inside a family trust means the trust is the shareholder. The trust owns the shares in the company, and when the company pays a franked dividend, that dividend and its attached franking credits flow up to the trust first, not directly to you. The trustee then decides which beneficiaries receive that income. This is a common and legitimate way to combine the flexibility of a discretionary trust with the lower tax rate and asset protection of a company.

The appeal is obvious. The company can retain profits and reinvest at the corporate tax rate, the trust gives you discretion over who receives distributions each year, and the whole arrangement can be built for asset protection. In our experience working with established business owners, this is one of the most common structures we review. The catch is that the franking credits, which are often the whole point of paying a franked dividend, do not automatically reach the beneficiaries just because the structure exists.

The problem: franking credits do not flow freely through a discretionary trust

Franking credits do not pass automatically from a discretionary trust to its beneficiaries. To claim a franking tax offset on a franked dividend received through a trust, both the trustee and the beneficiary must be a “qualified person”. Being a qualified person generally means satisfying the holding period rule: holding the shares “at risk” for at least 45 days (90 days for preference shares), not counting the day of purchase or sale, per the ATO’s guidance current as at November 2025.

Here is where a discretionary trust runs into trouble. The ATO’s position is that where a discretionary trust has not made a family trust election, its beneficiaries are treated as holding a “short position” equal to their interest in the shares. In plain terms, they are deemed not to hold the shares at risk, so they cannot satisfy the holding period rule and cannot be qualified persons. As the ATO puts it, a beneficiary of a discretionary trust generally cannot hold an interest in the shares at risk for the required 45 days “unless the discretionary trust has made a family trust election” (ATO, Non-widely held trusts and the franking tax offset, updated 18 November 2025).

The practical result: your company pays a fully franked dividend, the credits flow to the trust, and then, without an election in place, those credits can be trapped rather than usable by the family members you distributed to. For a growing business paying meaningful franked dividends, that is a real and recurring cost.

How a family trust election fixes the franking problem

A family trust election (FTE) removes the deeming that blocks the credits. Once a trustee makes an FTE, the beneficiaries are no longer deemed to hold a short position against their interest in the shares. Provided a beneficiary’s risk is not otherwise materially diminished, they are then treated as holding the interest at risk and can be a qualified person, so the franking credits can flow through to them. The FTE is made under Schedule 2F of the Income Tax Assessment Act 1936 and nominates a single “test individual” whose family group the trust must distribute within.

This is the core reason so many trusts that hold shares end up making an FTE. It is not because the law forces every family trust to elect. It is because, for a discretionary trust that owns shares in a company, the FTE is usually the cleanest and most defensible way to let the franking credits reach beneficiaries. The trade-off is that distributions must then stay inside the test individual’s family group, or a punitive tax applies (covered below). Our full walk-through of how the elections work, including whether they can be backdated, is in our family trust election and interposed entity election guide.

The test individual: one choice that constrains the whole group

The test individual is the single person whose “family group” the trust is locked to. Choosing them is the most consequential decision in the whole exercise, because their family group defines who can receive distributions without penalty, and the same test individual must be specified across the family trust election and every related interposed entity election in the group. Choose once, and it binds the entire structure.

The test individual is usually the parent or head of the family that the wealth flows through. Their family group broadly includes their spouse, children and other lineal descendants, parents, grandparents, siblings, and the spouses of those people, along with companies and trusts that have been brought inside the group by election. Because every entity in the structure has to line up behind the same test individual, a family with two separate branches, or a business partner who is not a relative, cannot simply be swept into one family group. That constraint is exactly why the choice needs to be made deliberately and early, not discovered later.

Interposed entities: bucket and holding companies need their own election

Any company, second trust or partnership that sits between the family trust and the individuals, and that receives distributions from the trust, generally needs an interposed entity election (IEE) to be treated as part of the family group. Without one, a distribution from an elected family trust to that entity is a distribution outside the family group, which triggers family trust distribution tax. The IEE must nominate the same test individual as the FTE.

This is where multi-entity structures get caught out. A bucket company used to hold retained profits is a beneficiary of the trust, so it usually needs an IEE. So does a holding company that sits above the group, and any second discretionary trust that receives distributions. Each interposed entity has to be brought inside the family group by its own election, all pointing at the one test individual. Getting the trust and bucket company working together is precisely where the elections matter most.

The traps when other family trusts and companies are in the group

Once you have more than one entity, three traps come up repeatedly. Distributing outside the family group triggers family trust distribution tax (FTDT) at the top marginal rate plus Medicare levy, currently 47% as at the 2025-26 year. One test individual constrains every entity in the group. And a company added as a beneficiary after a dividend has already been paid can miss the holding period entirely, losing the franking offset for that year even when every election looks correct.

Trap 1: distributing outside the family group (FTDT at 47%)

Once an FTE is in place, any distribution of income or capital outside the test individual’s family group is hit with family trust distribution tax at 47% (the top marginal rate plus the 2% Medicare levy), per the ATO’s family trusts guidance. This is not ordinary income tax on top of a distribution; it is a separate, flat, punitive charge on the amount distributed outside the group. It is why a mistaken distribution to a non-family entity, or to a bucket company that was never brought inside the group by an IEE, can be so expensive.

Trap 2: one test individual has to work for the whole family

Because the FTE and all the IEEs must nominate the same test individual, the family group is defined once and applies to every entity. In practice, this means a structure built around one branch of a family cannot easily distribute to a more distant relative, an unrelated business partner, or a separate family’s trust without triggering FTDT. If your plans involve bringing in a partner or splitting the structure between two families down the track, the test individual choice needs to anticipate that now.

Trap 3: adding a corporate beneficiary after the dividend is paid

This is the subtle one. Even with a valid FTE, a beneficiary only holds an interest in the shares from the day they become a beneficiary. The ATO’s guidance is clear that a company incorporated and added to the beneficiary class after the shares have gone ex-dividend has not held the interest at risk for the required 45 days, so it is not a qualified person for that dividend. In practice, says Mina Baselyous (CPA, CTA, Registered Tax Agent), the trap we see most is a bucket company added as a beneficiary after the franked dividend has already been paid; the credits are lost for that year even though every election on file looks correct.

Why the $5,000 small shareholder rule rarely saves a company

The small shareholder exemption lets an individual claim franking credits without meeting the 45-day holding period rule, but only where their total franking credit entitlement for the year is below $5,000, and only for individuals. It does not apply to companies, trustees or partnerships. So an individual family member can sometimes still get the offset even from a non-electing trust, but a bucket company never can.

A $5,000 franking credit entitlement is broadly a fully franked dividend of around $15,000 where the paying company is on the 25% base rate, so the exemption only helps at modest dividend levels. Crucially, the ATO confirms the exemption “only applies to individuals, and does not apply to trustees, partnerships or companies” (ATO, updated November 2025). If your plan is to stream franked dividends into a bucket or holding company, the small shareholder rule offers no help, and the elections and beneficiary timing have to be right.

A worked example

If the trust has made an FTE nominating one parent as the test individual, and the parents have been in the beneficiary class throughout the holding period, the parents are qualified persons. Their share of the $30,000 in franking credits flows through and can be used against their own tax. The election has done its job.

BucketCo, however, misses out for that year. It only became a beneficiary in February 2026, after the shares went ex-dividend. Even though the trust has a valid FTE, BucketCo did not hold an interest in the shares at risk for 45 days during the qualification period, so it is not a qualified person and cannot claim the franking offset on its slice for the 2025-26 year. The $5,000 small shareholder exemption cannot rescue it, because that exemption is for individuals only.

If the trust had made no FTE at all, even the parents would generally fail the holding period rule because of the short-position deeming, and the credits would be trapped rather than usable by the family. The lesson is consistent: make the election early, and get every intended beneficiary, including any bucket or holding company, into the beneficiary class and covered by an interposed entity election before the dividend is paid. Your share structure and who sits in the beneficiary class both matter here.

Getting the structure right up front

None of this means a trust that owns a company is a bad idea. It is often an excellent one. It means the elections, the test individual and the beneficiary timing all have to be handled deliberately, before dividends are declared and before a new entity is bolted on. The elections are relatively straightforward when planned in advance and can be genuinely difficult, or costly, to fix after a distribution or a dividend has already happened.

This is exactly the kind of thing a proactive advisor should be raising before you make a move, not explaining after the credits are lost. If your structure includes a trust, a trading or investment company and a bucket company, and you have never confirmed that the franking credits actually reach your beneficiaries, it is worth a review. Effective tax planning starts with getting the structure and its elections right.

Frequently Asked Questions

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Medicine is one of the most financially complex professions in Australia. High incomes, complex entity structures, professional service business rules, significant superannuation obligations, and a practice environment that blends employment, contracting, and private enterprise — it’s a combination that most general accountants simply aren’t equipped to handle at the level you deserve. I work with a number of medical professionals across Melbourne, and in this post I’ll explain what makes the tax and structuring position of doctors and specialists genuinely unique, and what good advice in this space actually looks like.

The Unique Tax Position of Doctors and Specialists

Medical professionals in Australia typically operate across multiple income streams simultaneously:

• Employment income from a hospital or health service
• Contracting income from providing services to medical centres or GP clinics
• Private practice income from patients billed directly or through Medicare
• Procedural income for specialists — often lumpy, high-value, and unpredictable

The interplay of these income streams creates complexity that a standard small business accountant isn’t trained to navigate. For example, the ATO’s personal services income (PSI) rules can prevent doctors from splitting income through a company or trust — a critical constraint that determines the structure options available.

Practice Structure Options for Medical Professionals

• Sole trader: Simple but fully exposed — all income at personal marginal rates, no asset protection, limited flexibility.
• Partnership: Used in group practices. Partners share income and expenses.
• Service trust: A trust that provides services (administrative, nursing, facilities) to the medical practice and charges a service fee. This is one of the most powerful structures available to medical professionals — but it requires careful structuring to survive ATO scrutiny.
• Incorporated practice: Subject to the PSI rules and relevant state medical board requirements.

Superannuation Strategies for High Earners

• Concessional contributions: Maximise the $30,000 annual concessional cap. At a 47% marginal rate, the tax saving on a full $30,000 concessional contribution is approximately $9,600 per year.
• Catch-up contributions: If your super balance is under $500,000, you may be able to carry forward unused concessional cap amounts from the previous five years.
• Division 293 tax: High earners (income above $250,000) pay an additional 15% tax on their concessional contributions.
• SMSF: For medical professionals wanting more control over their superannuation investments, particularly those who want to invest in property or specific assets.

Trust Distributions to Family Members

Where income can be structured through a service trust, distributions to family members in lower tax brackets can significantly reduce the overall family tax bill. However, the personal services income rules must be analysed carefully — if more than 50% of the income comes from one payer, PSI may apply, preventing income splitting.

Loan Arrangements and Division 7A

If you operate through a company, be very careful about Division 7A. Any loans, payments, or forgiven debts between your company and you personally can trigger Division 7A — causing the amount to be treated as an unfranked dividend. Read our full Division 7A guide here.

Investment Property for Medical Professionals

• Negative gearing benefits are greatest when your marginal rate is highest
• Structure for property investment — holding property in a trust vs personally vs a company has different CGT, land tax, and income tax implications
• Depreciation schedules — commissioning a quantity surveyor’s report to maximise depreciation deductions is almost always worth it

How Pinnacle Approaches This With Medical Clients

When medical professional clients come to Pinnacle, the first thing we do is map their entire income picture — employment, contracting, private practice, investments — and determine the PSI status of each income stream. This analysis drives every structural recommendation we make.

From there, we advise on the optimal structure for the private practice component, the service trust arrangement (if appropriate), superannuation strategy, and investment structure. Learn more about our advisory approach here.

If you’re a doctor, specialist, or allied health professional who isn’t confident your current accountant truly understands your tax position, contact Pinnacle today for a confidential review.

Frequently Asked Questions

Can a doctor operate through a company or trust in Australia?

Yes, in most states — subject to the applicable Medical Practice Act and the ATO’s personal services income rules. Some states require an incorporated medical practice (IMP) registration. Speak to Mina for a PSI analysis specific to your practice.

What is a service trust for a medical practice?

A service trust is a separate trust entity that provides management and support services to a medical practice and charges the practice a service fee. The fee is deductible to the practice and becomes income of the trust, which can be distributed to family members in lower tax brackets.

What is Division 293 tax?

Division 293 tax is an additional 15% tax on concessional superannuation contributions for individuals with income above $250,000, bringing the effective tax rate on those contributions to 30% — still far below the 47% personal marginal rate.

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Buying an investment property in a trust can shield the asset from personal creditors and stream rental profit to family members on lower tax rates. But the trade-offs are real: negative gearing losses are trapped in the trust, and in Victoria trust-held land pays a land tax surcharge from a $25,000 threshold. The best answer depends on your situation.

It is one of the most common questions we field from established business owners: “Should I buy my next investment property in a trust, or just in my own name?” It sounds like a simple structuring choice. In practice it touches negative gearing, capital gains tax, land tax, asset protection, borrowing capacity and estate planning all at once, and getting it wrong is expensive to unwind. As a Chartered Tax Advisor (CTA) and CPA, I want to give you the real picture, not a generic pros-and-cons list, so you can have an informed conversation before you sign a contract.

What does it mean to buy a property in a trust?

Buying a property in a trust means the legal owner on title is the trustee, holding the property on behalf of the trust’s beneficiaries, rather than you owning it personally. Most investment property is held in a discretionary (family) trust, where the trustee decides each year who receives the rental profit. The property is a trust asset, not a personal one, which is the source of both the benefits and the drawbacks below.

The trustee is usually a company (a corporate trustee), which adds a layer of protection and makes the structure cleaner to run. The trust deed sets the rules, the class of beneficiaries and the trustee’s powers. In our experience working with business owners, the people who get the most out of a trust are those who already run a family group with multiple income earners, an existing trading trust or bucket company, and a genuine need to separate business risk from personal wealth. If none of that applies, a trust can add cost and complexity without a matching benefit.

The advantages: asset protection and income streaming

The two biggest advantages of holding an investment property in a discretionary trust are asset protection and income streaming. Because the trustee owns the property, it generally sits outside your personal estate, so it is harder for a personal creditor or a business lawsuit to reach. And because the trustee chooses who receives the rental profit each year, the trust can direct income to whichever beneficiary is on the lowest marginal tax rate.

Asset protection for business owners

If you run a business, you carry risk: a supplier dispute, a personal guarantee, a professional claim. Property held personally is exposed to that risk. Property held in a properly structured discretionary trust with a corporate trustee is generally protected, because you do not legally own it. This is the single most compelling reason business owners we work with choose a trust. It is not bulletproof (clawback rules apply if you transfer assets while insolvent), but for a solvent owner planning ahead, it is a strong shield.

Income streaming to lower-taxed family members

Once a property is positively geared (rent exceeds costs), the trust can distribute that profit to a spouse, an adult child or a bucket company, sending it to whoever pays the least tax. A property held in one high-income earner’s name has no such flexibility: every dollar of profit is taxed at their marginal rate. Streaming is a legitimate, powerful planning tool, but it must be documented with a valid trust distribution resolution before 30 June each year.

The disadvantages: trapped losses, land tax and cost

The main disadvantages of buying property in a trust are that negative gearing losses are trapped, land tax is charged at a higher surcharge rate, and there is more cost and administration. These are the reasons a trust is not automatically the right answer. If your property will run at a tax loss for years, holding it in a trust can cost you more than it saves.

Negative gearing losses are trapped in the trust

This is the deal-breaker for many investors. If a property held personally makes a tax loss, you offset that loss against your salary or business income and get a refund now. A trust cannot do that. A trust’s loss is trapped inside the trust and can only be carried forward to offset the trust’s future income, subject to the trust loss rules. So a highly negatively geared property in a trust delivers no immediate tax benefit. In practice, says Mina Baselyous (CPA, CTA, Registered Tax Agent), this is the mistake we see most: a growth property that runs at a loss is often better held personally, while a cash-flow-positive property is a natural fit for a trust.

Higher land tax and set-up cost

Trust-held land is taxed more heavily. In Victoria for the 2026 land tax year, land held in most trusts is assessed at surcharge rates from a $25,000 threshold, with a trust surcharge of up to 0.375% on top of the general rates, compared with the $50,000 threshold that applies to land held personally (State Revenue Office Victoria, current land tax rates). You also pay to set up and run the structure: the trust deed, a corporate trustee, annual accounts and a separate tax return. For a single modest property, that cost can outweigh the benefit.

What the 2026 Budget changes mean for property in a trust

The 2026-27 Federal Budget changed the tax rules for property investors, and it is important to separate what is now law from what is only proposed. According to the ATO’s new-legislation guidance, two changes are law and apply from 1 July 2027: the 50% capital gains tax discount is replaced by cost base indexation plus a 30% minimum tax on capital gains for individuals and trusts, and negative gearing is limited to new builds. A separate measure, a 30% minimum tax on discretionary trusts, was announced in the same Budget but is not yet law. All of this feeds into the trust-versus-personal decision.

The negative gearing and capital gains tax changes were legislated as the Treasury Laws Amendment (Tax Reform No. 1) Act 2026, and the ATO confirms on its new-legislation guidance that these measures are now law and apply from 1 July 2027 (Australian Taxation Office, reforming negative gearing and capital gains tax). Crucially, negative gearing is being limited to new builds, not abolished: an investor who buys established property after Budget night (7:30pm AEST, 12 May 2026) can still deduct rental losses against their residential property income and carry unused losses forward, they simply cannot offset those losses against other income such as wages. Properties held before Budget night are grandfathered and unchanged, and investors in eligible new builds can still choose the current 50% CGT discount. The practical takeaways for anyone weighing up a trust in 2026 are:

• Negative gearing is now weaker on established property. Because negative gearing is limited to new builds, an established property bought after Budget night no longer produces a loss you can offset against your salary or business income (the loss can still offset property income and be carried forward). That weakens one of the historic reasons to hold established property in your own name, which narrows the gap with a trust.
• The CGT discount has changed for everyone. From 1 July 2027 the move to cost base indexation plus a 30% minimum tax on capital gains applies to individuals and trusts alike, so the old “trusts pass the 50% discount to beneficiaries” advantage is being reshaped. The structure still matters, but the sums are different.
• New builds are the more finely balanced case. Because investors in eligible new builds can still choose the 50% discount and can negatively gear, the choice of who holds a new build (you or a trust) becomes a considered planning decision, not a default.
• The 30% minimum tax on discretionary trusts is proposed, not law. Announced in the 2026-27 Budget to start 1 July 2028, it would tax the income of a discretionary trust at a minimum 30% at the trustee level, with a non-refundable credit for non-corporate beneficiaries, and the ATO states it is not yet law (Australian Taxation Office, minimum tax on discretionary trusts). It is a separate measure from the capital-gains 30% minimum tax above. If it proceeds it would change the income-streaming maths for trust-held property, so it is worth planning for, but not treating as settled law.

This is exactly the kind of moving target where modelling the numbers for your situation, before you buy, pays for itself many times over. It also raises a bigger question worth sitting with, whether a property gain is real wealth or just inflation. Our proactive tax planning service is built for these decisions.

Discretionary trust, unit trust or SMSF: which structure for property?

There is no single “trust” for property. The three structures we most often compare are a discretionary (family) trust, a unit trust and a self managed super fund. A discretionary trust gives the most flexibility to stream income and the strongest asset protection. A unit trust suits fixed-interest arrangements, for example two unrelated investors, and can help with land tax in some states. An SMSF suits long-term, super-funded investment with concessional tax, but with strict borrowing and use rules.

The right choice depends on who is investing, whether you are borrowing, whether the property is negatively or positively geared, and what you want to happen when you eventually sell or pass it on. A discretionary trust is the default for most family investors who want protection and streaming. A unit trust is common where partners want defined ownership. Holding property through an SMSF is a genuinely different strategy with its own rules; we cover it in detail in our guide to buying property through an SMSF. If a company might be involved, read our explainer on holding companies and asset protection first, because a company that holds property directly cannot access the 50% CGT discount at all.

Land tax on trust-held property in Victoria

Victorian land tax is where trusts feel the most pain. For the 2026 land tax year, most trusts are assessed at surcharge rates that begin at a $25,000 land value threshold, half the $50,000 threshold for individuals, plus a surcharge of up to 0.375% on top of the general rates, until the trust and general rates converge at $3 million (State Revenue Office Victoria, trusts and land tax). For a Melbourne investor, that surcharge can add hundreds or thousands of dollars a year.

There are ways to manage it. A unit trust or a nominated beneficiary election can, in some cases, have the land assessed at general rates rather than the trust surcharge rates. Whether that is available and worthwhile depends on your circumstances and must be weighed against the flexibility you would give up. This is a state-based, detail-heavy area, and it is one of the reasons we always model land tax across the whole family group before recommending a structure for a Melbourne or Casey-corridor client.

Should you buy your next investment property in a trust?

A trust is usually the right home for an investment property when you are a business owner who needs asset protection, the property is or will soon be positively geared, and you have family members or a bucket company to stream income to. It is usually the wrong choice when the property will be heavily negatively geared for years and you want that loss against your personal income now. The honest answer for most people is “it depends,” and the difference in tax over a decade is large enough to justify getting proper advice first.

The costliest version of this decision is discovering the wrong structure after settlement, because moving a property from your name into a trust later triggers full stamp duty again and a CGT event, as if you sold it. That is why we sit down with clients before they buy, model each option, and match the structure to both the property and the wider family group. If you are weighing up a purchase, explore our full guide to the types of trusts in Australia, understand how capital gains tax works on property, and see how a bucket company can cap the tax on distributed profit. When you are ready, speak to our team and we will map it out for you.

Frequently Asked Questions

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A business is usually valued by multiplying its sustainable earnings, the normalised profit after adjusting for owner add backs, by a market multiple that reflects its industry, size and risk. Other methods include discounted cash flow for growing businesses and asset based valuation for asset heavy ones. In practice the answer is a defensible range, not a single number, and what drives it is risk and how much the business depends on you.

Most owners have a number in their head for what their business is worth, and most are wrong, in both directions. Value is not what you have put in, or what you would like to retire on. It is what a rational buyer will pay for the future profit and the risk that comes with it. In our experience working with owners approaching a sale or a restructure, understanding what drives the number early is worth far more than a valuation done the month before you exit. Mina Baselyous, a Chartered Tax Advisor (CTA), CPA and Registered Tax Agent, advises owners on valuation, structuring and exit. This guide explains the methods, what really moves the figure, and how to lift it before you sell.

What is a business valuation and why it matters

A business valuation is an estimate of what your business is worth to a buyer at a point in time. It matters well before a sale: it underpins succession and exit planning, buying in or out a partner, raising finance, settling disputes, and meeting tax obligations. Knowing your number, and what moves it, turns vague ambition into a plan you can actually manage toward.

Valuation is also a management tool, not just an exit event. The same factors that lift a sale price, strong recurring revenue, low owner dependence, clean records and predictable growth, are the factors that make a business better to own today. That is why we treat valuation as connected to everyday performance and Virtual CFO work, not a one off number pulled together at the end. If you are buying rather than selling, the same logic drives price on the other side of the table, as covered in our guide to buying a business in Australia.

The main valuation methods

There are three common approaches. The earnings multiple method, most common for established small and medium businesses, applies a multiple to normalised profit. Discounted cash flow values a business on the present value of its expected future cash flows, and suits businesses with strong, forecastable growth. Asset based valuation totals the net assets, and suits asset heavy or winding down businesses rather than profitable trading ones.

For most owner operated businesses, the earnings multiple approach dominates because it is how buyers actually think: what is the sustainable profit, and how many years of it am I willing to pay for. Discounted cash flow is more rigorous but only as good as the forecasts behind it, so it is used for higher growth or capital intensive businesses. Asset based valuation usually sets a floor rather than the answer, because a profitable business is worth more than the sum of its equipment. A proper valuation often cross checks two methods to land on a range.

What actually drives the number

Two businesses with identical profit can be worth very different amounts. The driver is risk: the more certain and transferable the future earnings, the higher the multiple a buyer will pay. The biggest levers are owner dependence, revenue quality, customer concentration, growth trend, and the reliability of the financial records behind the numbers.

Start with normalised earnings. Buyers strip out owner add backs (personal expenses, above or below market owner wages, one off items) to find the true, ongoing profit, so clean, defensible accounts matter. Then they price the risk: a business that runs without the owner, earns recurring or contracted revenue, has no single customer above roughly ten to fifteen percent of sales, and shows a steady growth trend commands a materially higher multiple than one that is really a job with the owner at the centre. As Mina Baselyous (CPA, CTA) says, the fastest way to raise your valuation is not to grow profit by ten percent, it is to make the same profit far less dependent on you.

What is a multiple, and what is a good one?

A multiple is simply how many years of normalised earnings a buyer will pay. If a business earns $400,000 in normalised profit and sells on a multiple of three, it is worth around $1.2 million. Small owner operated businesses commonly trade on lower multiples, while larger, more systemised businesses with lower risk attract higher ones.

There is no single correct multiple; it reflects risk and size. As a broad pattern, small businesses that depend heavily on the owner often sell in the region of two to three times earnings, while larger, well systemised businesses with recurring revenue and a real management team can command four times or more. Industry norms matter too. The point is not to memorise a number but to understand that you influence your multiple: every risk you remove from the business moves it up. This is where planning to build a business that runs without you pays off directly at sale.

How to increase your valuation before you sell

The best time to lift your valuation is two to three years before you sell, not the week you list. The highest impact moves are reducing owner dependence, building recurring or contracted revenue, diversifying your customer base, cleaning up your financial records, and showing a consistent growth trend. Each one lowers buyer risk and lifts the multiple.

Practically, that means documenting systems so the business does not live in your head, promoting or hiring a second in charge, converting one off sales into retainers or contracts where possible, and getting your bookkeeping and reporting to a standard a buyer can trust in due diligence. Accurate records are the foundation: no buyer pays a premium for numbers they cannot verify. This is exactly the forward work a Virtual CFO engagement drives, and it dovetails with getting your structure right so the eventual sale is tax efficient through the small business CGT concessions.

When you need a formal valuation

A formal, independent valuation is worth the cost when the number carries real consequences: selling the business, admitting or exiting a partner, a divorce or dispute, raising finance, or meeting a tax obligation. Several tax outcomes, including the small business CGT concessions, depend on defensible market values, so a rough estimate is not enough.

The small business CGT concessions, for example, apply where the business has aggregated turnover under $2 million or maximum net asset value under $6 million as at the 2025-26 year (see the ATO small business CGT concessions), and the ATO expects values to be supportable, so market valuations for tax must follow the ATO valuation guidelines. For a sale, a defensible valuation also anchors your negotiation. Whether you are years from exit or preparing to sell now, understanding the number early lets you plan around it. It connects directly to selling your business and to proactive tax planning.

Frequently Asked Questions

Decisions like valuing or selling are where business advisory in Melbourne before the decision pays off.

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The Research and Development (R&D) Tax Incentive is the Australian Government’s main program for rewarding businesses that experiment and innovate. Companies with an aggregated turnover under $20 million receive a refundable tax offset equal to their company tax rate plus an 18.5 percent premium, which for a base rate entity is an effective 43.5 percent. To claim, you must spend at least $20,000 on eligible R&D and register the activities with AusIndustry.

If your business builds, tests or improves products, processes or software and takes on genuine technical risk to do it, you may be leaving real money on the table. The R&D Tax Incentive is one of the most generous and most underused concessions available to Australian companies. In our experience working with business owners, the two failures we see are eligible companies never claiming, and ineligible claims that fall over under review. Mina Baselyous, a Chartered Tax Advisor (CTA), CPA and Registered Tax Agent, helps businesses claim it correctly. This guide explains what it is worth, who qualifies, what counts as R&D, and how to claim it without stepping into trouble.

What is the R&D Tax Incentive?

The R&D Tax Incentive is a targeted tax offset that reduces the cost of eligible research and development. It is jointly administered by AusIndustry, which assesses whether your activities qualify as R&D, and the ATO, which handles the tax offset in your company return. The aim is to encourage companies to conduct experimental work they might otherwise consider too risky.

Unlike a grant, you do not compete for a limited pool of funding. If your activities and expenditure meet the rules, the offset is an entitlement. It applies across industries: manufacturing, software, engineering, food and agriculture, medical and biotech, and more. The common thread is not lab coats, it is technical uncertainty resolved through a systematic, experimental process. You can read the government overview on business.gov.au.

How much is the R&D Tax Incentive worth?

The value depends on your company’s turnover. Companies with aggregated turnover under $20 million receive a refundable offset of their company tax rate plus 18.5 percent, so a company on the 25 percent rate receives an effective 43.5 percent, and can get cash back even in a loss year. Companies with turnover of $20 million or more receive a non-refundable offset at a tiered premium above their tax rate.

For larger companies the premium is 8.5 percent above the company tax rate for R&D expenditure up to 2 percent of total expenditure, and 16.5 percent above for spend beyond that intensity threshold. A cap applies: the offset falls back to the company tax rate on notional R&D deductions above $150 million in an income year. These rates apply for the 2025-26 income year per the ATO R&D rates and entitlements guidance. From 1 July 2028 the refundable turnover threshold is legislated to rise from $20 million to $50 million and the expenditure cap from $150 million to $200 million. As Mina Baselyous (CPA, CTA) puts it, for a profitable company on 25 percent, a genuine R&D claim turns an ordinary deduction into an offset worth almost 44 cents in the dollar, which is why it is worth getting right.

Who is eligible to claim?

To claim, you must be a company (not a sole trader, partnership or trust) that is liable to Australian tax, you must conduct at least one eligible core R&D activity, and you must incur at least $20,000 of eligible notional R&D deductions in the year, or use a registered Research Service Provider. This company requirement is one reason business structure matters so much for innovative businesses.

Because only companies can claim, sole traders and trusts running genuine R&D often restructure so the R&D sits in a company. If innovation is central to your plans, factor this into your business structure from the start rather than trying to fix it retrospectively. The $20,000 minimum spend is a low bar for most serious projects, and expenditure below that can still qualify if the work is done by a registered Research Service Provider.

What activities and costs qualify?

Eligible R&D falls into two categories. Core R&D activities are experimental activities whose outcome cannot be known in advance and can only be determined by a systematic progression of work based on established science, conducted to generate new knowledge. Supporting R&D activities are those directly related to and undertaken for the purpose of the core activities.

The test that trips people up is technical uncertainty. Improving a product using known methods is not R&D; resolving a genuine unknown through hypothesis, experiment and evaluation is. Eligible expenditure can include the salaries of staff doing the work, contractor costs, a portion of overheads, and the decline in value of assets used in R&D. Routine data collection, market research, quality control and reproducing an existing product are specifically excluded. Careful, contemporaneous record keeping, notes of the hypothesis, the experiments and the results, is what separates a defensible claim from one that collapses under review.

How to claim: registration and the process

Claiming is a two step process. First, register your R&D activities with AusIndustry within 10 months of the end of your income year, which is 30 April for a company with a 30 June year end. Second, claim the offset in your company tax return by completing the R&D tax incentive schedule. You cannot claim the offset without registering first.

The registration describes your core and supporting activities and why they meet the definition, so the technical write up matters. Once registered, your accountant calculates the notional deductions and the offset in the tax return. Because the program is jointly reviewed by AusIndustry and the ATO, both the technical eligibility and the expenditure must stand up. This is exactly the kind of forward planning that sits alongside broader tax planning and, for scaling companies, a Virtual CFO engagement that keeps the numbers and the records in order year round.

Getting it right and avoiding the traps

The R&D Tax Incentive is generous, and that generosity attracts scrutiny. Overstated or poorly documented claims are a common target for review, and the cost of getting it wrong includes repaying the offset with interest and penalties. The safest approach is to claim only genuine R&D, keep contemporaneous records, and get the eligibility assessment right before you lodge.

Treat the incentive as one lever in a broader strategy rather than a standalone windfall. It works best when it is planned alongside your other concessions, such as the instant asset write-off and your wider approach to paying less tax legally. Done properly, it can materially change the economics of innovation for your business, funding the next project from the tax saved on the last one.

Frequently Asked Questions

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Buying an established business in Australia means paying for proven cash flow instead of starting from zero, but the price is only part of the deal. The three things that decide whether it is a good buy are due diligence (verifying the numbers and risks), structure (which entity buys it and how it is protected), and tax (stamp duty, GST and how the purchase price is allocated). Get those right before you sign.

Buying a business can be the fastest way to grow, and one of the easiest ways to overpay. You are buying someone else’s history, their contracts, their staff and sometimes their problems. In our experience working with buyers across Melbourne, the deals that go well are the ones where the structure and tax were sorted before the contract was signed, not renegotiated afterwards. Mina Baselyous, a Chartered Tax Advisor (CTA), CPA and Registered Tax Agent, advises buyers on exactly these decisions. This guide walks through due diligence, how to structure the acquisition, and the tax that quietly makes or costs you tens of thousands of dollars.

Asset purchase or share purchase: the first decision

Most small business acquisitions are structured as an asset purchase, where you buy the specific assets (goodwill, plant, stock, contracts) rather than the company that owns them. This lets you leave behind unknown liabilities and start with fresh cost bases. A share purchase, where you buy the company itself, is simpler on paper but carries every past liability with it, so it demands far deeper due diligence.

The choice affects your risk, your tax and your price. In an asset sale you generally step into new, higher cost bases for depreciating assets and can walk away from historical tax, litigation and employee issues. In a share sale you inherit the company’s entire history, including any hidden debts, so buyers usually pay less or demand stronger warranties. Which path suits you depends on the business, the seller’s tax position and how the two sides split the benefit, which is why this is a negotiation to have with your adviser early.

Due diligence: what you actually need to check

Due diligence is the process of verifying that the business is worth what you are paying and does not hide nasty surprises. At a minimum, confirm the reported profit is real and sustainable, that key customers and contracts will transfer, that staff entitlements are accounted for, and that there are no undisclosed tax or legal liabilities. Never rely on the seller’s summary alone.

The financial checks matter most. Look behind the headline profit for owner add backs (personal expenses run through the business, above market or below market owner wages) that change the true earnings. Confirm the figures against tax returns, BAS lodgements and bank statements, not just a spreadsheet. Then work through the non financial risks: lease terms and whether the landlord will assign the lease, customer concentration, supplier contracts, employee leave entitlements you will inherit, and any regulatory licences. As Mina Baselyous (CPA, CTA) says, the deals that hurt are almost always the ones where the buyer trusted the add back schedule without tracing a single number back to a lodged return.

How to structure the acquisition

The entity that buys the business should be chosen before you sign, because changing it later can trigger tax and duty. The right structure protects your other assets, positions you for the most efficient tax outcome, and sets you up for a clean exit down the track. For most established buyers this means a company, a discretionary trust, or a combination, rather than buying in your own name.

Buying in your personal name exposes your home and savings to business risk and usually gives the worst tax result. A well chosen structure separates business risk from personal wealth and can access valuable concessions later: the small business capital gains tax concessions, available where the business has aggregated turnover under $2 million or maximum net asset value under $6 million as at the 2025-26 year (see the ATO small business CGT concessions), can save a future seller hundreds of thousands of dollars. Read our guides on business structures in Australia and company versus trust to see how the options compare.

The tax angle: stamp duty, GST and price allocation

Three tax issues quietly move the real cost of the deal. Stamp duty may apply to the transfer of business assets and varies by state. GST can often be avoided if the sale qualifies as the supply of a going concern. And how the purchase price is allocated across goodwill, plant, and stock changes your future deductions and the seller’s tax, so it is negotiated, not automatic.

The GST going concern exemption is the one buyers most often miss. Where the seller supplies everything necessary for the business to keep operating and both parties agree in writing that it is a going concern, the sale can be GST free under the ATO going concern rules, saving you funding the GST up front. Price allocation is just as important: loading value into depreciating plant gives you faster deductions, while goodwill sits on capital account. These are competing interests between buyer and seller, and the contract should reflect what you agreed. This is core tax planning territory, and getting it wrong is expensive to unwind.

Financing, valuation and the handover

Once the structure and tax are settled, the remaining questions are what to pay and how to fund it. Business valuation is rarely a single number: it is a range built from the sustainable earnings, the multiple a business like this commands, and the risk you are taking on. A sensible buyer also plans the handover so customers, staff and suppliers stay through the transition. Knowing how to value a business is just as important on the buy side as the sell side.

Fund the purchase in a way that keeps the business cash flow healthy rather than starving it from day one, and build a transition plan with the seller (a handover period, introductions to key customers, and vendor finance where appropriate to keep them invested in your success). Ongoing management reporting from the first month tells you quickly whether the business is performing to the numbers you paid for, which is exactly where a Virtual CFO engagement adds value. If you are weighing buying against building, compare it with our guide on starting a business in Australia.

Frequently Asked Questions

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Yes. Your self managed super fund can buy the commercial premises your business trades from, because business real property is a specific exception to the rules that normally stop a fund acquiring assets from its members. The fund then leases the property back to your business at market rent, so the rent you already pay builds wealth inside super instead of enriching a landlord.

For many established business owners, the single biggest lever they never pull is owning their own premises through their SMSF. You already write a rent cheque every month. The question worth asking is who that money should be building wealth for. In our experience working with Melbourne business owners, buying the premises through an SMSF is one of the most powerful long term structuring moves available, and also one of the easiest to get wrong. Mina Baselyous, a Chartered Tax Advisor (CTA), CPA and Registered Tax Agent, has structured these arrangements for trading businesses across a range of industries. This guide explains how the business real property strategy works, the rules that make or break it, and when it is genuinely worth doing.

What is business real property?

Business real property is land and buildings used wholly and exclusively in one or more businesses. It is the one asset class an SMSF is allowed to buy from a related party, including from you or your own company, and lease back to your business. Ordinary residential property cannot be acquired this way, and a property with mixed personal use usually fails the test.

The exception sits in section 66 of the Superannuation Industry (Supervision) Act 1993. It matters because two rules would otherwise block the deal: the ban on acquiring assets from related parties, and the in-house asset rule. A factory, warehouse, office, shop, medical suite or workshop used in your trading business will generally qualify as business real property, provided the use is genuinely business use. A farm can also qualify even where a modest home sits on the land. Read the ATO guidance on restrictions on SMSF investments before you assume a property qualifies.

Why buy your business premises through your SMSF?

The core benefit is that rent leaves your business as a deductible expense and lands inside a superannuation fund, where investment earnings are taxed at just 15 percent and can fall to zero in retirement pension phase. You convert an ongoing cost into a wealth building asset you control, held in the most tax effective structure available to Australians.

The SMSF sector is large and growing: as at the March 2026 quarter there were 672,805 SMSFs holding around $1.06 trillion in assets, according to the ATO SMSF quarterly statistical report. A meaningful slice of that is business real property held by owners doing exactly this. The advantages we see clients value most are:

• Asset protection. The premises sit inside super, quarantined from most trading risk if the business ever strikes trouble.
• Rent stays in the family. Your business pays market rent to your fund, not to an external landlord, so the money compounds toward your retirement.
• Concessional tax on earnings. Net rent is taxed at 15 percent inside the fund, well below most business owners’ marginal rates.
• Capital gains treatment. If the property is sold after 12 months the gain is taxed at an effective 10 percent in accumulation phase, and potentially zero if sold while the fund is fully in pension phase.
• Security of tenure. You are no longer at the mercy of a landlord deciding not to renew your lease.

The rules you cannot ignore

The strategy only works if the arrangement is run strictly at arm’s length. The lease must be on genuine commercial terms, the rent must be at market rate, and it must actually be paid on time, every time. Get this wrong and the ATO can tax the income as non-arm’s length income at 45 percent, which destroys the whole benefit.

Three rules do the heavy lifting. First, the in-house asset rule limits most related party investments to 5 percent of the fund, but business real property leased to your business is specifically excluded from that cap, which is what makes the strategy possible. Second, the lease must be documented and the rent set by reference to comparable market evidence, not a number that suits your cash flow. Third, any income that is not on arm’s length terms is taxed as non-arm’s length income at the top rate. As Mina Baselyous (CPA, CTA) puts it, the mistake we see most is treating the rent as flexible: inside an SMSF, a discounted or unpaid rent is not a favour to your business, it is a compliance breach.

How to fund the purchase: cash or an LRBA

If the fund has enough to buy outright, the purchase is straightforward. If it does not, the fund can borrow using a limited recourse borrowing arrangement, where the property is held in a separate holding trust until the loan is repaid. The lender’s recourse is limited to the property itself, protecting the rest of the fund’s assets.

An LRBA lets a fund with a solid balance and steady contributions acquire premises worth more than its current cash. The mechanics of the holding trust matter and are easy to get wrong, so we have written a separate guide on how the SMSF bare trust and LRBA structure works. A common approach is for members to pool their super into one fund, then use concessional and non concessional contributions to service the loan and build the balance over time. If you have not established a fund yet, start with our guide on how to set up an SMSF in Australia.

The tax angle: rent, deductions and selling the property

The tax outcomes are what make owners lean in. The rent your business pays is a deductible business expense, exactly as it would be to any landlord. Inside the fund that same rent is taxed at only 15 percent, and the eventual capital gain is concessionally taxed, or tax free if the property is sold in pension phase. The result is a legitimate, ATO sanctioned way to shift wealth into the lowest tax environment available.

This is where the strategy connects to the rest of your plan. The premises become a retirement asset that is separate from your trading entity, which supports both asset protection and succession. It also interacts with your broader business structure and, when you eventually exit, with the small business capital gains tax concessions on the business itself. Coordinating the fund, the trading entity and your personal position is exactly the kind of forward planning a Virtual CFO engagement is built around, and where proactive tax planning earns its keep.

Is this strategy right for your business?

The strategy suits established owners with a reasonable super balance, a stable business that will occupy the premises for years, and a genuine intention to hold long term. It is less suitable if your super balance is small, your occupancy needs are uncertain, or you may need the capital back quickly, because super is preserved and cannot simply be withdrawn.

In practice the decision turns on your numbers: the value of the premises, your combined super balances, your business cash flow and how close you are to retirement. It is not a do it yourself exercise. The lease, the valuation, any borrowing and the fund’s investment strategy all have to be right, and the cost of an error is measured in tens of thousands of dollars of unnecessary tax. This is a conversation to have before you sign a contract of sale, not after.

Frequently Asked Questions

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The electric vehicle FBT exemption lets a business provide an eligible electric car for an employee’s private use without paying fringe benefits tax, which otherwise runs at 47%. To qualify the car must be a battery electric or hydrogen fuel cell vehicle, first held and used on or after 1 July 2022, and priced under the luxury car tax threshold for fuel-efficient vehicles ($91,661 for 2026-27).

Provide a car to yourself or a staff member the ordinary way and fringe benefits tax can add thousands to the cost every year. Do it with an eligible electric vehicle and that FBT can be nil. It is one of the few genuinely generous concessions left for business owners, but the eligibility rules are strict and one of them changed in April 2025. I am Mina Baselyous, a Chartered Tax Advisor (CTA) and CPA, and this guide covers exactly who qualifies, how to use the exemption, and the traps that catch people out.

What the electric vehicle FBT exemption is

Normally, when a business provides a car for an employee’s private use, that private use is a car fringe benefit and the employer pays fringe benefits tax on it at 47%. The electric car exemption removes that FBT entirely for eligible electric cars, including cars provided under a salary packaging or novated lease arrangement (ATO, electric cars exemption). For a business owner who was going to buy a car through the company anyway, that is a substantial saving, which is why the concession has driven so much interest.

Which vehicles qualify

To be exempt, the vehicle must meet every one of the ATO’s conditions. It must be a zero or low emissions vehicle, which since 1 April 2025 means only a battery electric vehicle or a hydrogen fuel cell vehicle. It must be a car designed to carry less than one tonne and fewer than nine passengers, so motorcycles and scooters do not qualify. It must be first held and used on or after 1 July 2022. And luxury car tax must never have been payable on it.

The plug-in hybrid change from 1 April 2025

This is the change that catches people. From 1 April 2025, a plug-in hybrid electric vehicle is no longer treated as a zero or low emissions vehicle and is not eligible for the exemption. There is limited grandfathering: you can keep applying the exemption to a PHEV only if it was used, or available for use, before 1 April 2025 and you have a financially binding commitment to continue providing that private use on and after that date. New PHEV arrangements from April 2025 do not qualify.

The luxury car tax threshold trap

The exemption only applies if luxury car tax has never been payable on the car, which in practice means its value must sit below the LCT threshold for fuel-efficient vehicles at the first retail sale and any later sale. That threshold is $91,387 for 2025-26 and $91,661 for 2026-27 (ATO, luxury car tax thresholds). Go a dollar over when the car is first sold and LCT applies, which permanently disqualifies the car from the FBT exemption, even for a later owner. Checking the price against the current threshold before you buy is essential.

How business owners actually use it

There are two common ways owners access the exemption. The first is a company-owned or company-financed electric car provided for private use. The second is salary packaging or a novated lease, where an employee (which can include a working director) sacrifices salary to fund an eligible EV and the private use is FBT-exempt. Either way, the associated running costs are also exempt: registration, insurance, repairs and maintenance, and the cost of electricity or fuel to charge and run the car are all covered.

One nuance on charging. A home charging station is not treated as an exempt car expense, though it may be a separate property or expense payment fringe benefit. To value home charging electricity, the ATO allows a shortcut rate under PCG 2024/2 (5.47 cents per kilometre for the 2026-27 FBT year), provided you keep the records to support it. This is exactly the kind of detail we build into a client’s tax planning so the saving is captured cleanly.

The reportable fringe benefit catch

Exempt from FBT does not mean invisible. The private use of an eligible electric car is still a reportable fringe benefit, so you must work out its notional taxable value and, where the threshold is met, report it on the employee’s income statement. A reportable fringe benefits amount does not attract income tax directly, but it can affect income-tested measures such as the Medicare levy surcharge, private health rebate, family assistance and certain repayment obligations. In our experience this is the part owners most often forget.

In practice, says Mina Baselyous (CPA, CTA, Registered Tax Agent), the exemption is genuinely valuable, but it is not a free-for-all. Get the vehicle type wrong, cross the luxury car tax threshold, or ignore the reporting, and the saving unravels. Done properly, it is one of the cleanest ways to fund a car through a business right now.

Caveats and what is coming

The exemption is current, but the government has said it will complete a review of the electric car FBT exemption by mid-2027 to consider electric car take-up, so the settings could change for future purchases. That is a reason to act on a genuine need now rather than assume the concession will look the same indefinitely, and a reason to lock in eligibility correctly from day one. Keep evidence of the purchase price, the first held-and-used date, and your charging records. This sits alongside the wider fringe benefits tax rules every employer should understand, and our guide to minimising fringe benefits tax covers the other levers. If you also use vehicles in the business more broadly, see how to claim motor vehicle expenses.

Frequently Asked Questions

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Section 100A is an anti-avoidance rule that lets the ATO cancel a family trust distribution where the beneficiary’s entitlement is really part of a reimbursement agreement, meaning someone else gets the benefit and tax is reduced. If it applies, the trustee is taxed on that income at the top marginal rate of 47%, and there is no time limit on the ATO amending.

This guide is part of our complete guide to trusts in Australia.

If you run your business through a family trust, Section 100A is the single most important integrity rule to understand right now. Since the ATO finalised its guidance in December 2022, distributions that families treated as routine for years are being tested against a much sharper standard. I am Mina Baselyous, a Chartered Tax Advisor (CTA) and CPA, and in our work with trust clients this is the area where good documentation and a clear commercial rationale separate a safe arrangement from an expensive one. This article explains what Section 100A catches, how the ATO’s risk zones work, and what to do about it.

What Section 100A is, and why the ATO cares now

Section 100A of the Income Tax Assessment Act 1936 is a long-standing anti-avoidance provision aimed at “reimbursement agreements”, where a beneficiary is made presently entitled to trust income but the real benefit of that income flows to someone else, usually someone on a lower tax rate. It sat quietly for decades. In December 2022 the ATO finalised Taxation Ruling TR 2022/4 and Practical Compliance Guideline PCG 2022/2, setting out its view of the law and how it will apply compliance resources (ATO, trust taxation reimbursement agreement). That guidance is why every trust distribution now needs to stand up to scrutiny.

What actually counts as a reimbursement agreement

Section 100A applies when four things are present: a beneficiary is made presently entitled to trust income; that entitlement arises out of an agreement; the agreement provides for a benefit to be given to someone other than that beneficiary; and a purpose of the agreement is that someone pays less tax. If all four are met and no exception applies, the distribution is a reimbursement agreement.

The classic pattern is an adult child on a low income being made entitled to trust income, but the cash never reaching them: it is paid to the parents, gifted back, lent back, or simply kept in the business. The child is taxed at a low rate on paper while the family enjoys the money. That mismatch between who is taxed and who benefits is exactly what Section 100A targets.

The consequence: trustee taxed at 47%, with no time limit

Where Section 100A applies, the beneficiary’s present entitlement is disregarded for tax purposes and the trustee is assessed on that share of the net income at the top marginal rate of 47%, including the Medicare levy (2025-26, per the ATO individual income tax rates). Worse, Section 100A carries no statutory time limit, so the ATO is not restricted to the usual two or four year amendment periods; it can look back many years. A distribution made in good faith years ago can still be reopened.

The ATO risk zones: green versus red

PCG 2022/2 sorts arrangements into risk zones. A white zone covers arrangements entered into before 1 July 2014 that the ATO will not review. The green (low risk) zone covers common, straightforward arrangements the ATO will not dedicate compliance resources to, for example distributing to an adult beneficiary who actually receives and keeps the money, or retaining funds that are genuinely applied for that beneficiary. The red (high risk) zone flags arrangements that attract attention, such as circular distributions and gift-back or loan-back schemes designed mainly to lower tax.

Being in the green zone does not mean Section 100A cannot apply; it means the ATO is unlikely to review you. Being in the red zone does not automatically mean you have breached the law, but you should expect scrutiny and be ready to defend the arrangement. Knowing which zone each distribution falls into is the practical starting point.

Safe arrangements versus risky arrangements

The safest distributions are the simplest: the beneficiary is entitled to the income, actually receives it, and uses it as they choose. Distributions to a spouse or adult child who genuinely gets the money, and retention of profits in a corporate beneficiary (a bucket company) that keeps the funds, are typically low risk. The risky arrangements are the ones where the money loops back: the beneficiary’s entitlement is gifted or lent back to the parents or trust, the entitlement is never paid, or the cash follows a circular path so that the person taxed and the person benefiting are different.

In practice, says Mina Baselyous (CPA, CTA, Registered Tax Agent), the mistake we see most is families distributing to adult children on paper while the funds are quietly kept in the business, with no loan agreement, no repayment, and no commercial reason. That is the pattern the ATO built Section 100A guidance around. Where a family trust needs to retain profits, a family trust and bucket company structure is usually a cleaner answer than an unpaid entitlement to an individual.

The “ordinary family or commercial dealing” exception

Section 100A does not apply to an agreement entered into in the course of ordinary family or commercial dealing. This is the exception most families rely on, but it is narrower than it sounds. A dealing is not “ordinary” just because it happens within a family; the ATO looks at whether the arrangement, viewed as a whole, is the kind of thing families genuinely do for real reasons, rather than a contrived series of steps whose main point is to shift tax. Good trust distribution minutes and a clear, contemporaneous commercial rationale are what make this exception available.

What business owners with family trusts should do now

Review how your trust has distributed over recent years and ask, for each beneficiary, whether they actually received and kept the benefit. Where entitlements were left unpaid, understand why and document a genuine reason or pay them. Put your distribution resolutions in place before 30 June each year, keep proper minutes, and make sure any loans or retained funds have real agreements behind them. Most importantly, plan distributions before the year ends, not in a scramble afterwards. Our guides to trust distribution strategies and family trust distributions set out how to do this well, and ongoing tax planning keeps it on track.

Frequently Asked Questions

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To sell your business in Australia tax-effectively, plan the exit years ahead: get the structure right, qualify for the CGT small business concessions (the $2 million turnover or $6 million net asset value tests), time the sale to use the 12-month CGT discount, and decide early whether you are selling to a third party or handing over through succession. If you are on the other side of the deal, see our guide to buying a business in Australia. Before you sell, it helps to understand how to value a business and what drives the number.

Most owners think about selling their business the year they want out. By then, the biggest tax savings are already off the table. The difference between a well-planned exit and a rushed one is routinely hundreds of thousands of dollars, and often the difference between a clean sale and a deal that falls over in due diligence. I am Mina Baselyous, a Chartered Tax Advisor (CTA) and CPA, and at Pinnacle Accounting & Advisory we treat an exit as a multi-year project, not a transaction. This is the pillar guide that pulls the pieces together; each section links to the deeper article on that lever.

Why exit planning starts years before the sale

The most valuable exit levers need time to work. The CGT 15-year exemption requires continuous ownership for at least 15 years. A restructure into a more sale-ready entity should be done well before a buyer is at the table. A business that depends entirely on the owner is worth less than one that runs without them, and reducing that dependence takes years. In our experience, owners who start three to five years out consistently keep more of the sale price than those who start three months out.

In practice, says Mina Baselyous (CPA, CTA, Registered Tax Agent), the exits that go well are the ones where the tax planning, the structure and the sale readiness were all set up long before the business was on the market. You cannot retrofit 15 years of ownership or clean up five years of messy books in the weeks before settlement.

Get the structure right before you sell

Your business structure decides how a sale is taxed and whether you can access the concessions at all. A sale can be structured as an asset sale (the business sells its assets and goodwill) or a share or unit sale (you sell your interest in the entity). Buyers usually prefer asset sales; sellers often prefer share sales; the tax outcomes differ significantly, and the right answer depends on your structure and the concessions you can reach.

If your current structure is not sale-ready, the small business restructure rollover can let you move to a better structure without triggering an immediate tax bill, provided you meet the conditions. This is exactly why we review structure early: choosing between a company, a trust or a combination is far easier before a buyer exists. Our guide to business structures in Australia covers the trade-offs in detail.

The CGT small business concessions: the biggest lever

The small business CGT concessions are the most powerful tax tool available when you sell. To access any of them you must first meet the basic conditions: you satisfy either the aggregated turnover test of under $2 million or the maximum net asset value test of $6 million or less, and the asset being sold passes the active asset test (ATO, small business CGT concessions eligibility, current as at the 2025-26 year). Where you sell shares or units, additional conditions apply. Our full guide to the CGT small business concessions works through the eligibility maze.

The 15-year exemption

If you have continuously owned the asset for at least 15 years, are aged 55 or over, and are selling in connection with your retirement (or are permanently incapacitated), the entire capital gain can be disregarded. This is the gold standard: a zero-tax exit. You can also contribute the proceeds to super under a special CGT cap. See our detailed walkthrough of the CGT 15-year exemption.

The 50% active asset reduction

If the 15-year exemption does not apply, the active asset reduction cuts the remaining gain in half. Stacked on top of the general 50% CGT discount for assets held over 12 months, an individual can be left paying tax on as little as 25% of the original gain before other concessions are applied.

The retirement exemption

The retirement exemption lets you disregard up to $500,000 of capital gain in your lifetime. You do not have to actually retire to use it, but if you are under 55 the exempt amount must be paid into super. Our guide to the CGT retirement exemption explains how it combines with the other concessions.

The rollover

The small business rollover lets you defer a capital gain by acquiring a replacement active asset within two years. It suits owners who are selling one business but reinvesting into another rather than fully cashing out.

Timing your sale

Timing changes the tax bill. Holding an asset for at least 12 months before sale unlocks the general 50% CGT discount for individuals and trusts (ATO, CGT discount). The income year in which you sell matters too: settling in a year of otherwise lower income, or spreading proceeds and earn-out payments across years, can keep more of the gain in lower brackets. Our explainer on the 50% CGT discount rule covers the holding-period trap that catches owners who sell too soon.

Succession versus a third-party sale

Not every exit is a sale to an outside buyer. The right path depends on who you want to take over and how much you need to extract from the business. The main options are a trade sale to a competitor or investor, a management buyout by your existing team, a family succession to the next generation, or a gradual transition where you sell down over time. Each has different tax, structuring and funding implications, and family successions in particular need careful handling to be fair to family members and defensible to the ATO.

Whichever path you choose, the concessions and structuring above still apply. A management buyout or family succession is still a CGT event, and getting the timing and eligibility right matters just as much as it does for a trade sale. Understanding how capital gains tax works for business owners is the foundation for all of it.

Getting sale-ready: due diligence starts with your books

Buyers pay more for a business they can trust, and they discount hard for anything that looks messy. Clean, accurate financial records over several years, documented systems and processes, contracts and leases in order, and a business that is not wholly dependent on the owner all lift the price and speed up due diligence. This is where proactive business advisory in Melbourne pays for itself: the same clean numbers and management reporting that run a better business also survive a buyer’s scrutiny. Ongoing tax planning in the years before sale keeps the structure and the numbers exit-ready.

Common mistakes we see

• Leaving it too late. Starting the year of sale forfeits the levers that need lead time, especially the 15-year exemption and any restructure.
• Assuming the concessions are automatic. The basic conditions, active asset test and (for shares) the extra conditions are technical and easy to fail without planning.
• Ignoring the net asset value test creep. Growth can push you over the $6 million threshold; timing and structure matter.
• Messy books. Buyers discount uncertainty, and poor records can sink a deal in due diligence.
• Forgetting super and family. Contributing exempt proceeds to super and planning succession fairly are part of a good exit, not afterthoughts.

Frequently Asked Questions

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