Starting a business
1-Asset Protection
* this article is a work in progress *
The 4 most common structures used for businesses are 1- sole trader 2-partnership 3- company and 4- family trust
Sole Trader
Advantages / Benefits
- Simplest structure available
- No setup costs
- Lower accounting fees
Disadvantages / Costs
- No asset protection
- No work cover insurance for business owner
- All businness profits are taxed in the hands of the business owner
- Difficult to split income with spouse
Partnership
2 or more entities (usually individuals) who share income & assets
Advantages / Benefits
- No setup costs
- Easier
- Accounting fees are lower
- Easier to split income with spouse
Disadvantages / Costs
- No asset protection
- No work cover insurance for business owner
- All businness profits are taxed in the hands of the business owner according to partnership agreement
Company
The trustee is responsible for business operations
Advantages / Benefits
- Limited asset protection as it is a separate legal entity
- Income tax minimisation / ability to retain profits in the company
- Base rate entities are taxed at 25%
- Other companies are taxed at 30%
- Access small business concessions
- Succession planning
- Ability to add / remove shareholders
- You can sell the company or just the assets of the company
Disadvantages / Costs
- Once off setup cost is $1,650 (Tax Slayer) includes meeting and advice
- Annual filing fees $310 (ASIC)
- Annual company management fee $220 (Tax Slayer)
- Annual accounting fees start from $1,650 (Tax Slayer)
- Unable to access the capital gains 50% general discount
- Losses are trapped and carried forward – subject to tests
- ATO rules (subject to change)
- If you want to take $ out of the company it will need to be paid as wages / dividends / repaid back to the company over 7 years plus interest
Family Trust (with Company trustee)
Advantages / Benefits
- Limited asset protection (assumes corporate trustee) as it is a separate legal entity
- Access the capital gains 50% general discount
- Access small business concessions
- Ability to distribute to a “bucket company” – taxed at 30%
- Income tax minimisation
- Income can be split
- Ability to distribute $ to beneficiaries on lower marginal tax rates – although the ATO is currently looking to restrict this
- Succession planning
- You can only sell the assets eg stock, equipment, goodwill – you cannot sell the Trust
- Wide list of beneficiaries including
- adult children
- parents
- siblings
Disadvantages / Costs
- Once off setup cost is $2,750 including corporate trustee (Tax Slayer) includes meeting and advice
- Annual filing fees $310 (ASIC)
- Annual company management fee $220 (Tax Slayer)
- Annual accounting fees from $1,650 (Tax Slayer)
- Lifespan of 80 years
- Requires a trustee – individual / company (recommended)
- Losses are trapped and carried forward – subject to tests
- Unable to add business partners
- Profits must be paid to beneficiaries
- Profits retained at top marginal rates i.e. 45%. Alternatively profits can be paid to a bucket company
- ATO rules (subject to change)
See also
business.gov.au - starting a business checklist