How sole traders, partnerships, companies and trusts differ on tax, liability, cost and paperwork, and when it makes sense to change structure.
The simplest and cheapest structure. You use your own tax file number, business income is taxed at your personal rates, and you are personally responsible for the business's debts. A good starting point for most new businesses.
Two or more people carrying on a business together. The partnership lodges its own tax return, but profits are split between the partners and taxed in their hands. Each partner can be liable for the partnership's debts, so a written partnership agreement matters.
A separate legal entity that pays its own tax. Small companies that qualify as base rate entities pay a lower company tax rate than the top personal rates, and shareholders' liability is generally limited. Companies cost more to set up and run, with ASIC fees, director duties and stricter record keeping.
A trustee runs the business for beneficiaries. A discretionary (family) trust can give flexibility in how income is distributed each year, but trusts have more complex rules and running costs.
Common triggers are rising profits, taking on more risk, bringing in a business partner or planning to sell. Changing structure can have tax and stamp duty consequences, so plan it before you move.
This article is general information only and does not take your personal circumstances into account. Talk to us before acting on it.
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