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Ensuring that you have the correct structure set up for tax and legal purposes is essential. You can find information about different structure types here:

Your guide to a comprehensive business structure

  Sole Investor Partnership Private Company Unit Trust Discretionary Trust Superannuation Fund
Administered by Individual Partners Directors Trustee Trustee Trustee
Responsible to N/a Partners Shareholders Unit holders Appointor Members
Cost to establish and run Low Fairly low Higher Higher Higher Higher
Protection of assets from outside risks/claims No No Only if owned by discretionary trust Only if owned by discretionary trust Yes Yes
Maximum tax rate Up to 45% plus Medicare levy Up to 45% plus Medicare or 27.5% if Partner is a Company 27.5% if profit retained Up to 45% or if unit holder is company 27.5% Up to 45% or 27.5% if able to distribute to a company beneficiary 15% if a complying fund (47% if non- complying)
Potential for slitting income No Between partners Between shareholders Between unit holders Between beneficiaries No, but reduces members tax
Streaming of income No limited No Dependent on trust deed Yes, subject to trust deed No
Taxable capital gains Paid by individual paid by partners Paid by company Paid by unit holder Paid by beneficiaries Paid by trustee
Access to CGT discount for assets held greater than 12 months Yes Yes No Yes Yes Yes
Other realised capital profits Not taxed Not taxed Taxed as an unfranked dividend to shareholder May be taxed as capital gain Not taxed 15%in a complying
Can losses be distributed? Yes Yes No No No No
Tax-free ‘tithing’ No No No Via family trust unit holder Yes, subject to trust deed No
Interest-free loan to relatives Not taxed as income Not taxed as income May be taxed as deemed dividend Not taxed as income Not taxed as income Not permitted
Flexibility Poor Fairly poor Fair Good Very good Fairly poor
Admission for new parties New structure is required Usually permitted Usually permitted Usually permitted May be difficult for non family members Usually permitted
Changing ownership N/a Partnership interest Shares Units By appointer N/a

Four commonly used types of business structures

Sole Trader

Definition: As a sole trader you are the sole business owner and trade in your own name. (e.g. Fred Smith Plumber).

  • Name: you can usually trade in your own name without having to register a business name
  • Simple: your customers / clients know precisely who they are dealing with
  • Staff: sole traders can have staff. You do not need to do all the work
  • Tax: you pay tax at your personal marginal tax rates
  • GST: the GST rules still apply
  • Risk: your personal assets are at risk from liabilities you may incur in the business

Partnership

Definition: A partnership is two or more persons carrying on a business together with a view to a profit.

  • Name: you will usually have to register a business name
  • Partnership Deed: you and your partner(s) need to be clear about your obligations and rights
  • Tax: the partners pay tax at their respective tax rates
  • Risk: partners are generally personally liable for the liabilities that arise in the business
  • Rest: a partner can make it possible to take a break

Trust

Definition: A trust is a relationship where the trustee carries on a business for the benefit of certain beneficiaries.

  • Trustee: a trust can only conduct business via a trustee. A trustee can be a natural person(s) or a company
  • Type: there are different types of trusts; discretionary (family) trusts, unit trusts and hybrid trusts
  • Tax: income splitting. The trustee can split income to beneficiaries with tax paid at their respective tax rates
  • Asset protection: trust assets and personally owned assets can often be kept separate. Careful consideration in drafting of the trust is needed here
  • Penal tax: penal tax is levied on retained earnings

Company

Definition: A company is a legal person (apart from its directors and shareholders) providing limited (“Ltd”) liability protection.

  • Single director and shareholder is all that is needed
  • Tax: a flat 27.5c in the dollar tax rate applies
  • Asset protection: company liabilities generally remain in the company
  • Retained earnings: can be accumulated (and only taxed at the 27.5c in the dollar flat tax rate)
  • Dividend franking: dividends can be franked or un-franked