How a Company Can Be a Beneficiary of a Family Trust

Family trusts are a standard way for Australian business owners to hold assets and split income between family members each year. The trustee holds the assets and, within the limits of the trust deed, decides who gets what. A question that comes up constantly is whether one of those "who gets what" slots can be filled by a company, usually a private company set up purely to receive trust distributions, often called a bucket company.

The short answer is yes, a company can be a beneficiary of a family trust, provided two things line up: the trust deed must allow it, and the tax mechanics around the distribution must be handled properly. The longer answer is about how those mechanics actually operate, because the sequence of steps, from deed authority through to what happens to the money, is where structures succeed or fail. This guide walks through that sequence: who is involved, what each stage produces, and where the traps sit.

Who Does What

Four moving parts make the structure work:

• Trustee: Holds the trust assets and decides each year how income and capital are distributed, within the limits of the deed. The trustee can be an individual or a company.
• Beneficiaries: The people and entities the deed says can receive distributions. The class is defined in the deed and can include individuals, companies and other trusts.
• Bucket company: A private company added to the beneficiary class to receive and hold trust income, often owned by the same family members who control the trust.
• Accountant and ATO: The accountant structures and lodges the tax side; the ATO administers the tax rules that decide whether a distribution is taxed to the company, the trustee or the beneficiaries.

The Trust Deed Is the Rulebook

A trust only exists in the form its deed creates. The deed defines who counts as a beneficiary, and the trustee's discretion to distribute only runs to people and entities within that definition. So the first question is never "can a company be a beneficiary?" in the abstract. It is "does this deed's beneficiary clause reach a company?"

Most modern family trust deeds do. They typically name primary beneficiaries, usually family members, and then a general class that extends to relatives, spouses, children and entities controlled by them, such as companies and other trusts. But deeds drafted decades ago can be narrower, and some define beneficiaries in ways that accidentally exclude companies. If the deed does not cover the company you want to use, any distribution to it is outside the trustee's power and can be challenged or unwound.

Where the deed is missing a company, the fix is usually a variation. A variation is only possible if the deed contains a power to vary, which most do, and it must be exercised strictly in accordance with the deed: the right person signs, the formalities for executing a deed are met, and any state duty or consent requirements are checked. Where the deed has no variation power at all, the options narrow considerably and can involve resettling the trust, which has its own tax consequences, so specialist advice is needed before going down that path.

The Family Trust Election Dimension

There is a separate, tax-law meaning of "family trust" that affects whether a company beneficiary works, and it is easy to miss. Under the Income Tax Assessment Act 1936 (Cth) (the ITAA 1936), a trust is only a family trust for tax purposes if the trustee has made a family trust election (an FTE), which must name an individual whose family group the election is measured against. Many trusts that people call family trusts have made this election to access concessions such as the trust loss provisions and franking credit concessions, and once made, it is very difficult to revoke.

The reason this matters for a company beneficiary is the family trust distribution tax (the FTDT). If a family trust confers a present entitlement to, or distributes, income or capital to anyone outside the named individual's family group, the FTDT applies at the top marginal rate on that distribution, which works out at roughly 47 per cent once the Medicare levy is included. That can turn a tax-effective structure into a very expensive one.

A company controlled by a family member will often fall within the family group, but where there is any doubt, a company can be brought inside the group through an interposed entity election (an IEE), which lets a company, partnership or trust join the family group of the individual named in the FTE. The trade-off is that an entity making an IEE becomes subject to the same distribution tax on its own distributions outside the family group. The point to take away is that adding a company beneficiary to a trust that has made an FTE is not just a deed exercise. The company needs to sit inside the family group before the distribution happens, or the FTDT applies.

Making the Company Presently Entitled

The annual distribution works through a concept called present entitlement. Under s 97 of the ITAA 1936, a beneficiary who is presently entitled to a share of the trust's income includes that share of the trust's net income in their assessable income. A beneficiary is presently entitled when they have a vested and indefeasible interest in the income, which in practice happens when the trustee resolves to distribute income to them for the year.

That resolution is the engine of the whole arrangement, and it has a deadline. For the company to be taxed on the income, the resolution needs to be made by 30 June, so the company is presently entitled to that year's income at year end. A resolution made after 30 June does not attach the income to that year. If no beneficiary is presently entitled to the income, the trustee is assessed on it instead, at the top marginal rate, which defeats the entire purpose of using a company.

The resolution itself should be a proper written minute of the trustee's decision, identifying the income year, the amount or formula and the beneficiary. Where the trust deed or the tax rules require it, specific types of income can be streamed to particular beneficiaries, such as capital gains or franked distributions, but that only works if the resolution matches the deed and the amounts are supportable. A vague or unsigned minute is the most common point of failure, because the ATO and, in a dispute, a court, will read the documents literally.

What Happens to the Money: Payment, UPEs and Division 7A

Once the company is presently entitled, the income is taxed to it, regardless of whether the cash has actually moved. That gap between entitlement and payment is where the next set of rules bites.

If the trustee pays the amount across, in cash or by transferring assets at market value, the arrangement is straightforward. If the trustee does not pay it, the company holds an unpaid present entitlement (a UPE). The ATO has long treated a UPE as the company providing financial accommodation to the trust, which Division 7A of the ITAA 1936 can treat as a loan, and a loan that is not repaid on time is a deemed unfranked dividend to whoever benefits from the funds. The ATO's current guidance, TD 2022/11 and the trust entitlements material, sets out the options for avoiding that outcome: pay the company before its tax return is lodged, put a Division 7A complying loan agreement in place with minimum yearly repayments, or set the amount aside on a sub-trust for the sole benefit of the company.

There has been a significant recent development here. In Commissioner of Taxation v Bendel [2026] HCA 18, decided in June 2026, the High Court held by a 5:2 majority that a UPE a corporate beneficiary simply does not call in is not a loan for Division 7A purposes, because the company has not actively done anything that amounts to providing financial accommodation. The decision directly contradicts the ATO's longstanding position in TR 2010/3 and TD 2022/11, and the ATO is reviewing its guidance in light of it.

That does not mean the UPE problem has disappeared. The High Court's decision turned on the particular facts, where the entitlements had been set aside on separate trusts, and the ATO's other weapons remain available. Subdivision EA of Division 7A still catches payments or loans a trustee makes to a shareholder while a UPE exists, s 100A can tax the trustee where a reimbursement agreement is involved, and Part IVA remains a general anti-avoidance backstop. The practical message is unchanged: document what is actually happening with the funds, and either pay the company, or put formal loan or sub-trust arrangements in place, before the lodgment date. Anyone sitting on existing UPEs should have their arrangements reviewed against the Bendel decision, because the correct response depends on the individual facts.

The Company Side of the Ledger

The reason a bucket company is attractive is the corporate tax rate. For the 2025-26 income year, companies pay 25 per cent if they are base rate entities and 30 per cent otherwise. A base rate entity is broadly a company with aggregated turnover under $50 million and no more than 80 per cent of its assessable income made up of passive income such as rent, interest, royalties and distributions.

There is a trap in that passive income test that catches trust structures. When a company receives trust distributions, the income is traced back to its source for this test. If the trust earns rent or interest and distributes it to the bucket company, that portion counts as the company's passive income. A bucket company that mostly receives passive trust income can tip over the 80 per cent line and pay 30 per cent instead of 25 per cent, which quietly erodes the whole point of the structure.

The company also carries its own obligations once the money lands. It needs an ACN and a tax file number, an ABN if it carries on an enterprise, and it must maintain its registers and financial records under the Corporations Act 2001 (Cth) even if it does nothing but hold distributions. When the company eventually pays dividends to its shareholders, the dividends carry franking credits at the company's tax rate, which matters for the family members receiving them and is a coordination point with your accountant rather than a legal hurdle.

Where It Commonly Goes Wrong

The recurring failures cluster in six areas:

• Deed mismatch: Distributing to a company the deed does not cover makes the distribution invalid, and the tax consequences follow the deed, not your intention.
• FTE blind spot: Distributing to a company outside the family group of a trust with an FTE triggers FTDT at close to 47 per cent on the distribution.
• Late resolutions: A resolution made after 30 June leaves the income taxed to the trustee at the top marginal rate.
• Undocumented UPEs: Money left in the trust without a loan or sub-trust arrangement is the classic Division 7A and s 100A exposure, even after Bendel.
• Passive income creep: Trust income sourced from rent or interest can push the bucket company past the base rate entity threshold to the 30 per cent rate.
• In-specie transfers: Paying the company by transferring assets has its own valuation and state duty consequences that need to be checked before the transfer happens.

Where a Lawyer Earns Their Fee

The structure spans private law and tax law, and the points of failure sit in the documents. A practitioner can review the deed to confirm the company is within the beneficiary class and the variation power exists, draft a deed of variation that matches the deed's formalities, and check the FTE and family group position, including whether an IEE is needed before any distribution is made. Each year, they can help prepare trustee resolutions that meet the deed and the tax requirements, and review loan, sub-trust and in-specie documentation so the paperwork matches the actual flow of funds. The accountant runs the numbers, but the legal documents are what the ATO and, in a dispute, a court will hold you to.

The 30 June Resolution Is Where the Structure Lives or Dies

Every year, the entire arrangement comes down to a small set of documents prepared before 30 June: a resolution that validly makes the company presently entitled, and a decision about whether the money is paid, lent on compliant terms or set aside. Get those right and the company is taxed at the corporate rate and the family group keeps control of the money. Get them wrong and the income is taxed to the trustee at the top marginal rate, or an unpaid entitlement turns into a deemed dividend or a s 100A problem. The deed, the FTE and the company structure are the foundations, but the annual paperwork is what actually delivers the result, and it is cheap to prepare compared with the cost of unwinding a mistake.