Tax Structuring for Business & Investment

When establishing a new business, there are multiple options on how to structure it to your best advantage. There are a number of options including structuring as a sole trader, partnership, company or trust.

Business Structures

Sole Trader

This is the most basic business structure in which you may operate as an individual with your own ABN. In regards to tax structuring, both your individual tax and business tax are consolidated and considered one. 

Partnership

A partnership is most appropriate when conducting business with one or more people. Whilst the set up costs can be inexpensive like the sole trader, there are challenges relating to the liability of both parties. You will likely have an increased resource pool but you will also be responsible for all debts incurred by the partnership. Personal assets may come into play to reconcile a debt if one party cannot pay it. Similarly to a sole trader, the business as a whole won’t pay any income tax; instead each partner is taxed according to his or her portion of partnership income.

Company

The decision to establish a company over other smaller legal structures means that your business becomes a separate legal entity entirely. Instead of being regulated by the Australia Tax Office, the company is regulated by the Australian Securities and Investments Commission. The advantages of an incorporated company are an increased access to capital to fund the operation of your company as people can buy shares within it. Some considerations to make are the PAYG instalments that will need to be made consistently through out the year, a yearly income tax return (for the business) and a GST that must be deducted if the company earns over a certain amount.

Investment Structures

Investment structures relate to how individuals can invest within a certain business structure. It directly relates to how your investments are legally owned. As addressed above, they can be owned through structures such as a sole trader, partnership or company. By implementing a certain business structure, it transfers the ownership of certain assets from individual ownership to joint or incorporated ownership.

Other forms of investment structures are trusts and superannuation funds that can own certain assets to provide beneficial management of them.