Structuring

When first setting out in business, it is important to consider the structure that you want to use and in order to do that we generally look at tax planning and asset protection to determine the best structure for you. Whilst different entities are relatively quite cheap to set up, and their ongoing costs are not greatly different, moving your business from one structure to another, down the track can be a costly exercise as it may involve Professional fees for restructuring, capital gains tax, stamp duty, reprinting of stationery, change to leasing documents etc.

 

ABN & GST Registration

Irrespective of which entity you chose, if your annual business turnover exceeds $75,000, then you need to be registered for GST.

 

Tax V Asset Protection

When considering which structure to use for your business, it is important to consider Taxation Consequences as well as Asset Protection. These 2 areas will help determine which entity is best suited for you.

 

Individual /Sole Trader

  • Ultimate control,
  • minimal establishment or ongoing costs
  • a serious lack of asset protection
  • very limited tax planning options.
  • Individual’s are taxed at Marginal rates. As your income increase so does your tax rate.

 

Partnership

  • Minimal establishment or ongoing costs
  • Suggest a formal partnership agreement be written up - this may result in higher set up costs
  • Poor asset protection (liable for partners mistakes)
  • Limited tax planning options (profits distributed to partners)
  • May want to consider a partnership of 2 family trusts

 

Trust (Discretionary/Family)

  • Trustees have control – these can be Individuals or a company
  • Low establishment costs
  • Some ongoing costs
  • Depending on Trustee, will determine Asset protection
  • Loss are retained in the Trust
  • Profits are distributed to the Beneficiaries via way of distribution minute which must be prepared before 30 June each year
  • Potential future issues with Capital Gains on business assets

 

Trust – Unit

  • Trustees have control – these can be Individuals or a company
  • Low establishment costs
  • Some ongoing costs
  • Depending on Trustee, will determine Asset protection
  • Loss are retained in the Trust
  • Profits are distributed to the Beneficiaries in line with Unit holdings

This type of structure might be of benefit when 2 separate family groups share a business, that way each family becomes responsible for their own taxation requirements.

 

Company – Private Pty Ltd

  • High Establishment Costs
  • High Ongoing costs (ATO and ASIC)
  • Asset protection
  • Tax Planning options
  • Losses are retained in the company
  • Profits are taxed at 30%
  • Dividends paid to share holders should come with franking credits
  • Need to watch loans to Shareholders/directors
  • Personal Use of Business assets!