Often when starting out in a business, the simplest and cheapest structure to use is either an individual (i.e. sole trader) or partnership. The cost to setup these structures are low, and with the expectation of low revenue in the initial years, it can also be the most tax effective.
For a little more money, many businesses will start with a simple company structure where the owners are the shareholders and directors.
However, as businesses expand, they also tend to outgrow their legal structure; this can result in a significantly higher income tax and as well as personal exposure to business risks. Therefore, including a Trust into a business structure can be of significant benefit to many businesses.
With recently introduced Stamp Duty and Capital Gains Tax exemptions, restructuring a business has never been easier.
It is important that the accountant and business owners review the most appropriate business structure every year to ensure it is the best fit for the business owners and their goals.
Below are the 10 Key Indicators that you may have outgrown your current business structure. If your business meets this criteria, you may need to seek advice in the near future:
- Your profit is more than $90,000 a year
- You do not predominately sell your time. Instead, sell a product or use equipment
- You have employees
- You travel overnight for work
- There is a significant amount of equipment used in the business
- You have an increased risk of exposure to liability of business activity
- You’re introducing new business partners or investors
- You have a spouse on low taxable income
- There are utes or private cars used by the owner or spouse
- You conduct research and development activities