How to Choose from Australia’s Different Business Structures

 

Are you intending on launching a small business in Australia? If so, you would benefit from having a working understanding of the various business structures that the ATO, or Australian Taxation Office, has established: Sole Trader, Partnership, Company, and Trust.

Sole Trader

A sole trader is, as the name implies, a particular business entity run by one person. It is the most affordable type of corporate structure. As the sole owner in this situation, you will have total control over how the company is run. You will also be held legally accountable for the company’s losses and debts as a result of this.

You must pay a worker’s super if you hire them for your company. You also need to pay your super. To save money for the future, you might deposit the cash in a designated fund.

The Essentials of a Sole Trader

Below are some essential characteristics of a sole proprietorship.

When submitting your income tax return, you can enter your personal tax file number.

You are allowed to report all of your income on your individual tax return. As there is no separate tax return for business for sole proprietorship businesses, you can utilize the business items section to list all business revenue and costs.

You can register your business for GST if it has an annual GST revenue of $75,000 or more.

Taxes are owed at the same individual taxpayer income tax rates.

Any contributions made to your personal super are deductible. The super fund must be informed before making this contribution.

While you’re here:

Regardless of what type of business structure you opt for, you may benefit from having liability insurance for small business to protect you and your assets if things don’t quite go according to plan.

Partnership

In a partnership business, a group of people or an association owns the company, and profits and losses are shared among the parties involved. Operating and establishing a partnership business is less expensive than a limited company. The partners in this situation share business control.

It will be preferable to have a written partnership agreement describing the structure of income and loss sharing. This can be quite beneficial because it eliminates the possibility of misunderstandings and conflicts. Additionally, it aids in the filing of taxes. Partners may hire employees, and they are liable for both their own and their employees’ super payments.

Principals of Partnership

The foundational components of a partnership business are as follows:

  • Partnership reports that include all deductions and income must be filed annually, and each partnership business has a unique Taxation File Number.
  • Each partner’s tax returns include a portion of the partnership income. Additionally, the partners pay this tax on the partnership profit share at their individual tax rate.
  • Unlike sole proprietors, partners must apply for and utilize a distinct Australian Business Number (ABN) for all business-related purposes.
  • If the business’s annual revenue is $75,000 or more in this instance as well, it must be registered for GST.

Limited Company

Among the Australian company structures, a company is a legal entity that requires more setup and administration steps. A company’s owners are referred to as its stakeholders, while the directors continue to have ultimate authority. A firm provides some asset protection, and the directors are accountable for any deeds or actions of the company.

Characteristics of a Limited Company

The foundational components of a limited company are as follows:

  • The business proprietors must apply for a TFN, much like a partnership, and use it to file their annual tax return.
  • A firm that is incorporated under the Corporations Act of 2001 should also have an ABN. If it isn’t already registered, it could also need to do so if it conducts business in Australia.
  • Regular filing of an annual corporate tax return is required. Additionally, income tax must be paid via the PAYG, or pay as you go, instalment system at the corporate tax rate.
  • A business’s profit directly influences how much tax it pays.
  • If the company’s annual revenue is $75,000 or more, GST registration is required.
  • Only the qualified employees should receive super guarantee payments from the company.

Trust

In a trust arrangement, the corporation is managed by a trustee (which could be a person or a company). The trustee selects the beneficiaries to whom the revenue will be dispersed. Because of this, establishing this corporate structure is more costly.

Characteristics of a Trust

The following are the main attributes of trust.

  • As is the case with a partnership or business, a trust should also have its TFN, which will be used when filing a tax return.
  • Trusts should have their own ABN.
  • If a trust’s annual GST turnover is $75,000 or more, it should be registered for GST, just like the other three business types.
  • Whether the earned income is distributed among the beneficiaries and the deed will determine whether tax is payable. The trust is exempt from paying the tax if the money is given to the adult beneficiaries.Each and every beneficiary should receive super.

Personal Services Income (PSI) varies in Australia depending on the type of business structure. If the business takes payment for the owner’s labour, the owner of a sole proprietorship or partnership may be eligible to collect personal services income or PSI. However, if the same situation is the case in a corporation or trust structure, the owner must determine if the pertinent laws are in effect.

 

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