Query on tax structure

[mgs4]

A tax question that's not purely property but relevant to a lot of the business owners on the forums. Does anyone have any view at what level of business income its desirable to move from a sole trader setup to a pty ltd?

The pros and cons are obviously as a sole trader you start getting clipped onerous marginal income tax as you start to book reasonable income. With the pty ltd you can obviously benefit from the lower 30% corporate tax rate relative to higher marginal income tax rates, but there's higher tax/accounting/regulatory requirements.

Does anyone have any thoughts from practical experiences? Cheers.

 

[Terry_w]

A tax question that's not purely property but relevant to a lot of the business owners on the forums. Does anyone have any view at what level of business income its desirable to move from a sole trader setup to a pty ltd?

The pros and cons are obviously as a sole trader you start getting clipped onerous marginal income tax as you start to book reasonable income. With the pty ltd you can obviously benefit from the lower 30% corporate tax rate relative to higher marginal income tax rates, but there's higher tax/accounting/regulatory requirements.

Does anyone have any thoughts from practical experiences? Cheers.

$1 depending on the business. Companies offer limited liability which means the small fee involved can save you a fortune.

 

[RPI]

Agreed.

Company might also be a trustee for a disc trust or a unit trust or might be a trading company.

If you have other shareholders then it may be a case that you have a shareholders agreement which requires all shareholders to be discretionary trusts.

 

[Paul@PFI]

Before you establish a business you should always consider the structure FIRST. Moving to a company could involve stamp duty and CGT later !!

Terry's comment about liability is very relevant. Sole traders and partnerships have some serious problems:
- No workers Comp ! (Except a genuine employee)
- Income protection insurance can be difficult
- Liability risks (losses, injuries, financial liability for each others debts etc)
- 100% of profit is taxed at taxpayer marginal rate
- No asset protection

There are many structures other than companies. Unit trust, discretionary trust etc. I often see people who form a company to find its subject to "personal service income" rules, Super guarantee and even some significant issues with the company owning a valuable CGT asset such as intellectual property.