2018 FINALIST

Accounting Firm of the Year

2018 FINALIST

Fast-Growing Firm of the Year

2018 FINALIST

Small Business Adviser of the Year

2018 FINALIST

Tax and Compliance Firm of the Year

Client Testimonial

When we first decided that we wanted to open our own business we did not know where to start. We look back now and think how lucky we were that someone suggested we get in touch with Graeme Harris and Fred Pane at Accumulus. We first looked at purchasing an existing business and were so glad we trusted the advice the team at Accumulus provided. We took their advice and built our own business from scratch. Accumulus put us in touch with everyone from lawyers to help us with leasing a property, finance brokers, insurance brokers and also set us up with the most up-to-date accounting software. Accumulus feels like an extension of our business. We trust their advice. They are only ever an email or a phone call away. They take the stress out of running a business which allows us to focus on running a profitable business. We love that they are local, that they refer us to other local businesses and that they refer business to us as well!!!

Michael and Katrina

Arrow Smash Repairs

Business Structure

When it comes to selecting the most appropriate structure for your business we always recommend you ‘start with the end in mind’. Australian tax laws are complex and changing your business structure at some point in the future can trigger a capital gains tax event that could prove costly. Whenever we provide advice on business structures we always consider issues like:

  1. Minimisation of Income Tax
  2. Maximize Asset Protection
  3. Allow for the admission of New Business Partners or Investors
  4. Comply with all Legal Requirements in your Industry
  5. Future entitlement to Discount Capital Gains Tax Concessions

When evaluating the right business structure you need to consider the likely profitability of the business, the current tax position of all stakeholders and the risk profile of the industry. In some cases you might also need to consider if it will be easier to do business in your industry as a sole trader or company. Consequently, we often find the business structure is a compromise based on the relative importance of these issues.

When it comes to business structures there are a range of options. The most common structures in Australia include sole trader, partnership, company and family (discretionary) trust. Below is a very summary of these structures and their tax treatment. Before you decide on which structure is the most appropriate for your business circumstances we urge you to contact us.

Business Structure

OFFERS UNIQUE BENEFITS

Business Structure

OFFERS UNIQUE BENEFITS

Summary

Each type of business structure has its own set of rules and regulations and impact on important issues like asset protection, tax rates, availability of discount capital gains concessions, treatment of carry forward tax losses and abilities to advance loans to associates that are summarised in this table:

SOLE TRADER or PARTNERSHIPUNIT TRUSTDISCRETIONARY TRUSTCOMPANY
ASSET PROTECTIONNoYes – if Corporate TrusteeYes
TAX RATEOwner’s Personal Tax RateBeneficiary’s Tax Rate28.5%*
50% CGT DISCOUNT ON ASSETS HELD MORE THAN 12 MONTHSYesYes, if distributed to individual beneficiaryNo
CARRY FORWARD TAX LOSSES YesYes, may have Capital Gains Tax consequencesYes, if Family Trust Election is madeYes, subject to Conditions
ABILITY TO ADVANCE LOANS TO ASSOCIATED PERSONSYesMay have deemed dividend consequences if there are unpaid loans to a Company.Deemed dividend unless loan on commercial terms for Private Companies

Sole Trader

Many people start out as a sole trader. It’s the simplest and easiest structure to set up. All you need is a valid ABN and you can begin. Your tax return happens at the end of the financial year as normal and if you reach the threshold for GST, you register and charge GST. But the biggest downside of this structure is that if you run into financial trouble, everything you own is at risk.

Partnership

Partnerships are two or more people who run a business together and share profits. Like sole traders, each person in the partnership is liable when it comes to debt. To protect yourself and everyone involved from future issues, it’s best to draw up a partnership agreement that outlines everything, including who is responsible for what, how profits will be shared and distributed, and what happens if one of your partners wishes to exit the partnership.

Company

Unlike partnerships and sole traders, a company is a separate legal entity, which means your personal assets are safer in case the business runs into hard times. All shareholders in the business receive after-tax profits via franked dividends, and any salaried shareholder must receive the mandatory superannuation contribution. Though this structure may look like the best way to protect yourself from financial trouble, setting up a company structure is a costly exercise to set up, and 100% of any capital gain is taxed.

Trusts

There are many different types of trust structures,
But the most common two are:

  • Discretionary trusts most commonly used for a family business,
  • Unit trusts, where there is more than one “partner” in the business and each partner has a fixed entitlement to the profits of the unit trust.

Sole Trader

Many people start out as a sole trader. It’s the simplest and easiest structure to set up. All you need is a valid ABN and you can begin. Your tax return happens at the end of the financial year as normal and if you reach the threshold for GST, you register and charge GST. But the biggest downside of this structure is that if you run into financial trouble, everything you own is at risk.

Partnership

Partnerships are two or more people who run a business together and share profits. Like sole traders, each person in the partnership is liable when it comes to debt. To protect yourself and everyone involved from future issues, it’s best to draw up a partnership agreement that outlines everything, including who is responsible for what, how profits will be shared and distributed, and what happens if one of your partners wishes to exit the partnership.

Company

Unlike partnerships and sole traders, a company is a separate legal entity, which means your personal assets are safer in case the business runs into hard times. All shareholders in the business receive after-tax profits via franked dividends, and any salaried shareholder must receive the mandatory superannuation contribution. Though this structure may look like the best way to protect yourself from financial trouble, setting up a company structure is a costly exercise to set up, and 100% of any capital gain is taxed.

Trusts

There are many different types of trust structures,
But the most common two are:

  • Discretionary trusts most commonly used for a family business,
  • Unit trusts, where there is more than one “partner” in the business and each partner has a fixed entitlement to the profits of the unit trust.

Trusts are a complicated structure that offers many tax benefits but can also incur losses that affect future profits. The ATO provides a step-by-step guide to setting up a trust, but it is best to get legal advice and assistance to ensure you meet all the requirements and find an accountant who understands management of a trust.

Which one’s for you?

Now you’ve got a good overview of what business structures are out there, it’s time to decide. Knowing the right one means your business could save you in tax or protect your personal assets. But you shouldn’t make this decision alone. Talk to us to make sure you have the best structure for your needs.

Let our experienced team help you
set up your business for success with the
right business structure today

Proudly Serving Melbourne

Accumulus Advisory has been serving Melbourne for many years. Since opening we have been servicing many of Melbourne’s businesses with our accounting services. These services include tax planning, virtual CFO services, business coaching and advising. We have been servicing many businesses across the city with our accounting solutions, from the lawyers in the city to the small businesses down the road. Here at Accumulus Advisory, we have the skills to help you and your Melbourne business reach it’s full potential.