Tax and Compliance Differences for Arborists: Trusts vs Companies

How Trust Structures Work for Tree Service Businesses

Family trust structures allow arborist businesses to distribute income flexibly among beneficiaries, typically family members. This means you can allocate business profits to your spouse or adult children who might be in lowest marginal tax rates, reducing your overall family tax burden.

For the 2024-25 financial year, individual tax brackets start at 0% for income up to $18,200, then 16% up to $45,000, 30% up to $135,000, 37% up to $190,000, and 45% beyond that. If your business generates significant business profits, distributing some trust income to a spouse earning less can result in substantial tax savings.

Tax Benefits of Trust Structures

A discretionary trust doesn’t pay tax at the entity level. Instead, beneficiaries pay tax on distributed income at their personal marginal tax rates. This income distribution flexibility becomes particularly valuable during profitable years when you might otherwise face high individual income tax rates on all business income.

Trust structures also provide access to the 50% capital gains discount for assets held longer than 12 months. This benefit doesn’t apply to separate legal entities, making trust structures attractive for arborists who might eventually sell business assets like specialised equipment or property.

The trust structure works well for seasonal small businesses typical in arboriculture. During high-earning periods, you can distribute income to beneficiaries in lower tax brackets. During quieter months, minimal distributions mean minimal tax obligations for beneficiaries.

Trust Compliance Requirements

Trust administration requires annual income distribution to avoid penalty tax rates. If trust income isn’t distributed by June 30, the trustee pays tax at the highest marginal tax rate of 45%. This means you can’t easily retain property within the trust structure for future investment.

Trust record-keeping involves maintaining detailed distribution records and ensuring all beneficiary tax obligations are met. While less complex than company compliance, trust structures still require annual tax returns and careful documentation of trustee decisions outlined in the trust deed.

How Company Structures Work for Arborist Operations

Company structures treat your tree service business as a separate legal entity, providing stronger asset protection and different tax treatment. Companies pay a flat corporate tax rate rather than individual marginal tax rates, which can provide significant advantages for profitable operations.

For the 2024-25 financial year, companies with turnover under $50 million and passive income under 80% qualify for the 25% corporate tax rate. Other companies pay tax at 30%. Compare this to individual tax rates that can reach 45%, and the potential tax benefits become clear.

Company Tax Advantages

The main advantage of company structures lies in profit retention capabilities. Unlike trust structures that must distribute income annually, companies can retain property at the corporate tax rate. This allows reinvestment in equipment, vehicles, or expansion without triggering higher individual tax rates.

Companies can also pay franked dividends to shareholders, providing tax credits that can reduce or eliminate additional tax obligations when business profits are eventually distributed. This system prevents double taxation while allowing flexible timing of income recognition.

For arborists planning significant equipment purchases, company structures offer better depreciation benefits and clearer separation between business and personal assets. This separation becomes crucial when applying for business loans or dealing with potential personal liability claims.

Company Compliance Obligations

Company compliance requirements are more extensive than trust obligations. Companies must lodge annual financial statements, maintain proper corporate records, and comply with Australian Securities and Investments Commission requirements.

Directors face personal liability for company debts in certain circumstances, particularly regarding employee entitlements and tax obligations. However, for arborist small businesses operating with proper insurance and financial management, these risks remain manageable.

Comparing Structures for Your Situation

The choice between trust and company structures depends on your personal circumstances, but several key factors consistently influence the decision for arborist small businesses.

Cash flow patterns play a key difference in structure selection. If you need regular income for family expenses, trust structures provide more flexibility in timing and amount of distributions. If you experience seasonal income variation typical in tree services, companies offer better profit smoothing capabilities.

Asset protection considerations also matter significantly. Tree service businesses face higher liability risks due to equipment operation and property work. Companies provide stronger asset protection to personal assets, while trust structures protect beneficiaries from business-related claims.

Tax Rate Comparisons

For arborists earning significant business profits, tax rate differences become key features. If your business consistently generates profits that would push your individual income into higher tax brackets, company structures often provide better outcomes.

Consider an arborist business generating $200,000 annual profit. As an individual, tax on this amount reaches the 37% bracket plus Medicare levy. Through a separate legal entity, the same profit faces only 25% or 30% corporate tax rate, with additional tax deferred until dividend distribution.

However, if profits are modest or you need to extract most income immediately, individual tax rates through trust distribution might prove more tax effective than corporate tax plus dividend tax.

Implementation Considerations

Both business structures require professional setup and ongoing compliance management. Trust establishment involves drafting appropriate trust deed documents and appointing suitable trustees. Company establishment requires ASIC registration, company shares structure setup, and director appointments.

Ongoing costs vary between structures, with companies generally requiring higher compliance expenses but potentially providing greater tax benefits for profitable operations. Consider both setup costs and annual compliance expenses when evaluating options.

Making the Right Choice for Your Tree Service Business

The decision between trust vs company structures isn’t permanent, but changing later involves complexity and potential tax consequences. When you’re personally liable as a sole trader, both structures offer limited liability protection, though companies provide stronger separation of business and personal assets. Consider your business goals, family situation, and risk tolerance when evaluating whether you need a corporate trustee to manage trust property or prefer the advantages of a company structure.

Most successful arborist small businesses benefit from professional advice tailored to their personal circumstances. Trust structures give trustees powers to distribute income flexibly, but trustees remain responsible for trust assets and compliance obligations. Companies separate your personal liability from business debts, making them attractive for equipment-heavy operations with higher risk exposure typical in tree services.

Whether you choose trust property ownership for income flexibility or company structures for asset protection, we help arborist business owners across ACT choose the appropriate business structure. We implement systems that reduce tax stress while protecting what you’ve built, addressing the unique challenges of seasonal income and liability exposure in tree services.