Trades & construction
Sole trader to trust structure
$850,000 turnover
$260,000 net profit
The position
A builder operating as a sole trader. Every dollar of profit lands on one tax return, with the top slice taxed at 45% plus Medicare levy. The spouse does the books and quoting but draws nothing.
What changes
- Business moved into a discretionary trust
- Spouse paid for the administration work she already does
- Retained profit distributed to a corporate beneficiary at 25%
Modelled reduction, year one
$29,755
Effective tax rate falls from 33.9% to 22.4%
See the working
Before — sole trader
| Taxable income | 260,000 |
|---|---|
| Income tax | 82,870 |
| Medicare levy (2%) | 5,200 |
| Total tax | 88,070 |
After — trust distributions
| Owner — $135,000 | 33,720 |
|---|---|
| Spouse — $45,000 | 4,595 |
| Corporate beneficiary — $80,000 at 25% | 20,000 |
| Total tax | 58,315 |
| Difference | 29,755 |
Around $5,600 of this is deferral rather than permanent saving. When the corporate beneficiary eventually pays a franked dividend, top-up tax applies. The permanent component is roughly $24,100. Assumes the spouse genuinely performs the work and controls her own distribution, and that Division 7A obligations are met.
