Until the 2026 Budget, the default advice for an Australian founder incorporating a new startup was to hold the shares through a discretionary trust. The Budget changes that maths. This article walks through whether the trust default still makes sense, and what the alternatives look like.

Why founders defaulted to a trust historically

Two main reasons:

1. Flexibility. The trustee could choose each year which beneficiary received income, optimising for the lowest marginal tax rate (spouse, adult children, parents). Distributions to a bucket company let you retain post-exit proceeds at the company tax rate. On exit, the 50% CGT discount flowed through to beneficiaries.
2. Asset protection. A trust separates legal ownership of the shares from the founder personally, so personal creditors can’t directly attach the shares.

Both together justified the setup cost and ongoing admin of running a trust.

What changes after the Budget

A lot of the benefit of the old rules was being able to distribute income to lower-taxed beneficiaries. Because 30% is now captured at the trust level from 1 July 2028, that benefit is gone. You can still distribute flexibly, but the trust is now tax-neutral at best. Bucket company strategies are also blocked, since corporate beneficiaries don’t receive the non-refundable credit for the trustee tax.

Asset protection is unchanged. The trust still separates legal ownership.

The three options for a new founder

1. Hold the shares personally.

Simplest. Lowest setup cost. You bear personal CGT on exit. No structural asset protection. ESOP design and investor documentation are straightforward.

2. Hold the shares through a discretionary trust.

Same exit tax outcome as holding personally, but with asset protection. Setup cost roughly $1.5k for the trust plus corporate trustee. Ongoing admin: annual trust returns, beneficiary management.

3. Hold the shares through a holding company.

The shares sit in a company you own. Income flowing up gets the company tax rate (25% for small business). Capital gains inside a company never received the 50% CGT discount, even today, so this option is more about retaining and reinvesting post-exit proceeds than optimising the exit itself. Division 7A rules apply when you extract money personally.

So what should I do?

For a sole founder incorporating today, the question reduces to one: do you need the asset protection enough to justify the setup cost and ongoing admin of a trust?

If you have meaningful personal assets to protect (existing wealth, family home owned outright, other businesses, professional liability exposure, or family circumstances where asset separation matters), the trust still makes sense.

If you don’t, hold personally. Simpler, cheaper, no tax disadvantage.

A holding company is worth considering if you expect to retain and reinvest substantial proceeds after exit rather than spend them, but for most founders this is an overlay you can add later, not a starting structure.

If you already have a trust holding shares in an existing company, we have a separate piece on what CGT and trust changes mean for your exit.

This is general information, not advice. Structural decisions at incorporation are difficult to unwind cleanly later, and the right answer depends heavily on your specific situation.