For many established business owners, years of work can leave value spread across several places: the trading company, family trusts, other companies, superannuation and personally held assets.
But there is another question that often gets much less attention.
What happens to those structures when you eventually step away from the business?
Selling a business or reducing your involvement doesn’t automatically unwind the tax structures you’ve spent years building. Where profits and assets sit, who owns the shares in different entities, and how money can eventually move between those entities can all have tax consequences.
That is why tax structuring before retirement is worth looking at well before the business is sold or you stop working.
Quick Summary
- A profitable trading company can accumulate substantial cash over time, but leaving excess funds inside the operating entity can create tax and commercial considerations.
- Family trusts, corporate beneficiaries commonly called bucket companies, and superannuation can each play different roles within a broader structure.
- How the shares in a bucket company are owned can affect what happens when dividends are eventually paid.
- Division 7A needs to be considered when company entitlements or loans arise within a trust and company structure.
- Restructuring later can potentially trigger tax and transaction costs that may not have arisen if the structure had been considered earlier.
- Superannuation has its own tax and regulatory rules and should not simply be treated as another company or trust.
- There is no single structure that is right for every business owner. The appropriate tax structure depends on the business, existing entities, assets and individual circumstances.
Prefer to watch? Pat walks through a hypothetical business owner example and explains the tax structuring issues in the full video.
The Structure You Built for Business May Need to Work Beyond the Business
During the growth years, most business owners understandably concentrate on the business itself.
Cash flow needs to be managed. Tax needs to be paid. Staff, suppliers and customers require attention. Profits may accumulate, and additional entities may be established as the business becomes more complex.
Over time, you might end up with a trading company, family trust, bucket company and superannuation interests, along with assets held in different places.
Those entities shouldn’t automatically be viewed as interchangeable.
A trading company has a very different purpose from a family trust. A corporate beneficiary has different tax characteristics again. Superannuation operates under its own regulatory and tax framework.
As you move closer to eventually exiting or reducing your involvement in the business, it becomes important to understand what each part of the existing structure is doing and whether it still makes sense.
Start With the Trading Company
Consider a hypothetical business owner who has operated a successful company for many years.
The company generates more cash than it needs for normal working capital, and over time a substantial balance accumulates in its bank account.
There is nothing inherently wrong with a profitable company retaining cash.
However, the trading company is also the entity carrying on the day-to-day business. Depending on the circumstances, it may have obligations to employees, suppliers, lenders, the ATO and other parties.
Related reading: Asset Protection for Business Owners in Australia.
That raises an important structuring question: How much capital does the business genuinely need to operate, and what is the purpose of funds retained above that amount?
The answer will be different for every business. A company with significant inventory, seasonal cash requirements or large debtor balances may need considerably more working capital than another business of the same size.
This isn’t about automatically moving money out of a company. It is about understanding why the money is there and considering the tax and commercial consequences of the existing arrangement.
Where a Family Trust Can Fit
In some business structures, shares in the trading company are held through a discretionary family trust rather than directly by the individual business owner.
A family trust can provide flexibility, but the tax treatment is different from that of a company.
One particularly important distinction is capital gains tax.
Subject to the relevant eligibility requirements, a trust may be able to access the 50% CGT discount for assets held for at least 12 months. Companies generally cannot access the general 50% CGT discount.
That difference can become significant when deciding where long-term growth assets are held.
It is also one reason business owners should be cautious about restructuring simply because tax rules or headlines change.
Related reading: Trust Tax Changes 2026 Australia: Are Discretionary Trusts Dead?
The important point isn’t that a trust is always better than a company. It isn’t. It is that moving an asset from one structure to another can have consequences, so the purpose of each entity needs to be understood before making changes.
Where the Bucket Company Comes In
A corporate beneficiary, commonly called a bucket company, may also form part of a family trust structure.
Broadly, a trust may distribute income to a corporate beneficiary, with the company paying tax on that income at the applicable company tax rate.
But the accounting entry isn’t the end of the story.
Where an entitlement or loan remains between a trust and a private company, Division 7A can become relevant.
Division 7A contains rules designed to prevent private company profits being provided to shareholders or their associates as untaxed payments or loans.
Depending on the arrangement, complying loan terms and minimum yearly repayments may be required.
Related reading: Division 7A Loans: The 25-Year Version Explained
Division 7A is an area where the details matter. Documentation, security, timing and annual compliance all need to be handled correctly.
One Detail That Can Matter Later: Who Owns the Bucket Company?
One of the issues Pat discusses in the accompanying video is something that can appear relatively unimportant when a bucket company is first established: Who owns its shares?
When a company is new and holds very little, the ownership decision may not seem particularly consequential.
Years later, the position can look very different.
The company may have accumulated significant assets or retained profits. At that point, changing its ownership may create tax, duty or other consequences depending on the circumstances.
Share ownership can also affect who is legally entitled to dividends paid by the company.
That makes ownership something worth considering when the structure is established rather than assuming it will always be easy to change later.
Importantly, this does not mean there is one shareholder arrangement every business owner should use. The appropriate ownership structure depends on the wider tax, legal, succession and estate-planning circumstances.
Superannuation Is a Separate Part of the Picture
Many established business owners will also have substantial superannuation interests by the time they begin considering an exit from their business.
Superannuation needs to be treated separately from the company’s and trust’s tax structures.
Different rules apply to contributions, accumulation and pension phases, withdrawals, investment decisions and fund compliance.
The tax treatment can also change depending on age, balance, fund circumstances and the law applying at the time.
For business owners using an SMSF, the interaction can become even more complex.
For example, there are circumstances in which an SMSF may hold business real property used by a related business, subject to strict rules and commercial terms.
Related reading: Buying Your Business Premises Through Your Super Fund
Cotchy can advise on taxation, accounting and business-structure implications. Decisions about which financial products or investments you should acquire or hold require appropriately licensed financial advice.
Why Timing Matters
Perhaps the most important point in Pat’s video isn’t about any particular entity. It’s timing.
A structure that can be considered while a business is operating and assets have not yet accumulated may become considerably more difficult to alter years later.
Moving assets between entities can potentially involve capital gains tax, stamp duty and other transaction costs.
Changing company ownership after significant value has accumulated can also be very different from establishing the ownership correctly at the beginning.
Similarly, waiting until immediately before a business sale may leave fewer restructuring options than considering the issue several years earlier.
That doesn’t mean every business owner approaching retirement should restructure. Quite the opposite.
It means existing structures should be reviewed before making changes so you understand what you already have, what each entity is doing and what the tax consequences of changing it could be.
Don’t Build the Plan Around One Tax Outcome
The worked example in Pat’s video shows how different parts of a structure can interact once a business owner is no longer working full time.
It is an illustration, not a promised result.
Tax outcomes can vary substantially depending on income, age, superannuation balances, company profits, franking credits, ownership arrangements, other assets and the tax law applying at the time.
Rules also change.
A structure established today therefore needs ongoing accounting and tax review rather than being treated as something that can be set up once and ignored indefinitely.
Questions Worth Asking Before You Step Away From the Business
If you’re several years away from selling your business or reducing your involvement, some useful tax and structuring questions to raise with your accountant include:
- What entities are currently in my structure and what purpose does each serve?
- How much working capital genuinely needs to remain in the trading company?
- Where have profits accumulated over the years?
- Who owns the shares in my trading company and any corporate beneficiaries?
- Are there existing Division 7A loans or unpaid entitlements that need to be managed?
- What assets are held in trusts versus companies or personally?
- Could changing the existing structure trigger CGT, duty or other tax consequences?
- How does my superannuation interact with the tax position of my broader structure?
- What needs to be reviewed now rather than immediately before a business sale or retirement?
These questions don’t determine what investments you should own or how you should fund your retirement. They help establish whether the tax and business structures you already have are working as intended.
Frequently Asked Questions
When should a business owner review their structure before retirement?
There isn’t a universal age or deadline. However, reviewing the structure several years before a planned business exit generally provides more time to identify tax and structural issues than waiting until a sale or retirement is imminent.
Should I leave accumulated profits in my trading company?
There is no single answer. The business may need retained cash for working capital, future expenditure or risk management. The appropriate level depends on the business and its circumstances. Your accountant can help assess the tax and structural implications of retained profits.
What is a bucket company?
A bucket company is an informal term commonly used for a corporate beneficiary of a trust. A trust may distribute income to the company, which is then taxed under the rules applying to companies. Division 7A and other tax rules may become relevant depending on how the funds and entitlements are dealt with.
Can a family trust own shares in a company?
Yes, a discretionary trust can hold company shares. Whether that is appropriate depends on the circumstances and requires consideration of tax, legal, asset-protection and succession issues.
Does Cotchy provide retirement or investment advice?
No. Cotchy provides accounting, taxation, bookkeeping and business advisory services. We can advise on the taxation and accounting implications of business structures, trusts, companies and superannuation arrangements within the scope of our professional authorisations.
Cotchy does not hold an Australian Financial Services Licence (AFSL) and does not provide financial product advice, investment advice, portfolio management or recommendations about which financial products or investments you should acquire, hold or sell.
The Earlier You Review the Tax Structure, the More You Can Understand
For established business owners, stepping away from the business isn’t simply about deciding when to stop working.
There may be years of accumulated profits, assets and multiple entities sitting behind the business.
Understanding how those structures operate, what tax consequences already exist and what could happen if you change them is something worth doing before a transaction forces the issue.
If you’re approaching a business sale, succession or eventual retirement and want to review the tax and accounting side of your existing structure, speak with the Cotchy team.
We can help you understand what sits where, how the entities interact and which tax issues need to be considered before you make structural changes.
