There are four commonly used business structures in Australia:
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- Sole trader– an individual operating as the sole person legally responsible for all aspects of the business. Like other structures, as a sole trader, you can employ people to help you run your business.
- Partnership – an association of people or entities running a business together, but not as a company.
- Company – a legal entity separate from its shareholders.
- Trust – an entity that holds property or income for the benefit of others.
It’s important to understand the responsibilities of each structure because the structure you choose may affect the tax you’re liable to pay, asset protection and costs. You’re not locked into any structure and you can change the structure as your business changes or grows.
The following common errors can result when small businesses change their business structure from a sole trader to a more complex company or trust structures:
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- Reporting income for the wrong entity
- Clamming expenses incurred by another entity as business expenses
- Use of business bank accounts for personal use
Therefore, you need to be aware of the following:
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- The company is a separate legal entity from a shareholder or director
- Money that the company earns, belongs to the company
- The company owns it’s assets and the shareholders/ directors cannot treat these assets as their own
- If a director or shareholder of a company uses company assets for their personal use, it must be properly treated as a benefit to the director or shareholder (and Div 7A or FBT will apply if not treated correctly).
If a client moves to a trust structure, the trustee’s responsibilities include:
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- Holding the trust property (including assets, investments and income) for the benefit of the beneficiaries
- Managing the trust’s tax affairs
- Paying the trust’s tax liabilities
If you’re unsure as to whether to change a business structure you have attend to these changes correctly, you should contact us.
Need help?
If you require any further information, please contact one of our tax accountants on 1300 QUINNS (1300 784 667) or on +61 2 9223 9166 to arrange an appointment or teleconference. Alternatively, please click here to submit an online enquiry form.
