Getting the right tax structure for your new business may provide huge tax benefits in terms of capital gains tax, income tax, asset protection, and it can also increase the likelihood of obtaining finance.

There are many factors that need to be considered when deciding what structure to adopt and making the wrong decision can be costly. We have put together five starting points for you to consider. We urge you to contact us to help you best determine what structure will be most suited to you and your business.

  • How effective is being a Sole Trader?

Being a Sole Trader (having an ABN and/or Business Name) is in essence the most simplistic tax form an enterprise can take. It may be fine when a business is at its infancy but once it is established and generating an income, such a simplistic structure will offer little in the form of effective tax minimisation and asset protection.

  •  Benefits of a Discretionary Trust

Discretionary trusts (also commonly referred to as a ‘family trust’) help keep your money in your pocket. Although there are certain rules which must be adhered to (such as the distribution of Personal Services Income), such a structure grants discretion to the Trustee (normally a Company) to distribute net business income to any one of a ‘specified’ or ‘general beneficiary’, as specified by the terms of the trust deed. Such discretion allows for certain family members not otherwise entitled to a distribution of net business income, to all of a sudden be entitled to receive a tax free distribution of income (subject to the particular individuals marginal tax rate). Please note, the amount children under the age of 18 can receive is limited.

  •  Do you need a company established in your structure?

One of the most important features of having an established company in your structure (usually as a trustee of a trust) is the asset protection it provides i.e. protecting your personal assets from creditors. Although having an individual acting as a trustee of a trust is perhaps a cheaper option when it comes to the initial set-up, this is not seen as best practice, and may be a much more costly alternative should unforeseen circumstances eventuate into the future.

  •  Should you consider a Partnership?

Partnerships may be considered for businesses with two or more individuals or families. As with a sole trader, partnerships owned by individuals offer very little in the form of effective tax minimisation and/or personal asset protection. These risks can however be mitigated if for example, a partnership of two discretionary trusts (each with their own Corporate Trustee) is formed. Unit or hybrid trusts are also effective in this instance.

If you are starting a new business or reviewing your existing business structure, and would like to discuss your options, please call us on +61 3 8319 4076 – we would appreciate the opportunity to assist.