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Demystifying Business Structures

This guide offers a clear and concise overview of different business structures in Australia, including sole traders, companies, and trusts. Presented by Amanda Armstrong, Business Advisory Manager at Hayes Knight NT, the document outlines the tax implications for each structure, such as tax rates for companies and the role of trusts in distributing profits. It also discusses the process of transitioning between structures and the potential tax exemptions available. Learn the essentials in plain English to make informed business decisions.

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Demystifying Business Structures

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  1. Demystifying Business Structures Companies, Trust & Sole Traders explained in plain English Presented by Amanda Armstrong Business Advisory Manager Hayes Knight NT

  2. Individual - Sole Trader 2011-12 The above rates do not include the Medicare levy of 1.5% and the flood levy. These tax rates apply for residents of Australia for tax purposes.

  3. Individual - Sole Trader 2012-13 Estimated based on the ‘clean energy’ carbon tax.

  4. Companies • Companies are taxed at 30% • It doesn’t matter if the profit is $1,000 or $100,000 the tax rate is always 30% • Proposed tax rates will decrease to: • 29% in 2013-2014 • 28% in 2014-2015 • And some small businesses will actually have paid 28% in the 2012-2013 year. • These were announced as part of the budget but as year haven’t been voted in by law

  5. Trusts • Trusts in there own right are not taxed unless there are no beneficiaries that are presently entitled to the income. • Trusts must distribute out any profits to beneficiaries which can be individuals or companies depending on the trust deed. • Individuals will then pay tax at their marginal tax rates as per slides 2 & 3. • Companies would pay tax at their tax rate as per slide 4. • Trusts cannot distribute losses

  6. Transferring from one business structure to another This can occur but it depends on each situation. In general sole traders can transfer to companies with an exemption from Capital Gains Tax if the rollover provisions of s122A apply, therefore the CGT consequences wouldn’t occur at this point in time. The rollover provision may also apply for depreciating assets in the sole traders name under s40-340(1). In regards to trading stock these would need to be sold as market value to the new entity and be included as assessable income in the sole traders tax return – (s70-90 /s70-95 ITAA 1997)

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