Starting a Business in Australia – Business Structures Overview

When starting a business in Australia, choosing the right business structure is crucial. The four main types are:

1. Sole Trader

• Simplest & cheapest structure.

• Business income is declared in your individual tax return, taxed at marginal tax rates.

• Pros: Easy to set up , low compliance, no separate tax return.

• Cons: Limited flexibility, all income taxed in your name, not ideal for asset protection or income splitting.

• Best for: Individuals starting out or testing a business idea.

2. Partnership

• Similar to sole trader but involves two or more people/entities.

• Partnership files a separate tax return, profits split and taxed at partners’ marginal rates.

• Pros: Still relatively simple, allows profit splitting (e.g., between 2 individuals, can also be between 2 companies, and trusts or a combinaiton of both).

• Cons: Slightly higher setup and compliance costs, may need a legal agreement.

• Best for: Spouses or collaborators sharing ownership but not ready for a company or trust.

3. Trust (usually Discretionary/Family Trust)

• Profits can be distributed flexibly to beneficiaries each year, offering tax planning advantages.

• Useful for income splitting and generational wealth strategies.

• Pros: Tax minimisation, flexible distributions, legal protection (with corporate trustee), estate planning.

• Cons: Complex to set up and manage, higher legal and accounting costs, must distribute income annually or face high tax rates.

• Best for: Families with multiple income earners, wealth-building strategies, or investment holding.

4. Company

• A separate legal entity with a flat 25% tax rate (for small businesses).

• Allows retaining profits, bringing in shareholders, and offers limited liability.

• Pros: Good for growth, asset protection, and long-term planning.

• Cons: Higher setup and ongoing accounting costs, legal complexity (e.g., Division 7A rules).

• Best for: Businesses expecting to grow significantly or needing to retain profits in the business.

Final Notes

• Always seek professional tax and legal advice before choosing a structure. As this can affect your overall business strategy and long term planning.

• The right choice depends on your current needs, future goals, and personal circumstances.

The above information is generic in nature and does not account for personal circumstance. Therefore, seeking professional advice is extremely important and the above information should not be realied upon unless all if the variable specific to an individual are considered.