There are many factors that contribute to the financial success of your business in Australia, and one of them is the type of business structure you choose.
This might be one of the most critical business decisions you make – so getting it right is important.
When choosing the right business structure, there are 5 most important criteria to consider:
1. The nature of your business income: If the bulk of your business income is Personal service income (PSI), regardless what business structure you choose, PSI must to be attributed to an individual and taxed at individuals marginal tax rate.
2. Your personal liability exposure from your business products or services: With high liability exposure business, you may need to consider structures that offer asset protection or limited liability.
3. Whether you have (or plan to have) partners or investors in the business: If you plan to go into business with one or more other individuals, you may wish to consider partnerships, companies and trusts.
4. The administrative costs of setting up and maintaining your business structure: Some business structures are expensive and require an ongoing reporting and maintenance cost. It would be best if you quantify your objectives and tax benefits you are trying to achieve and compare it to the potential business structure cost you are likely to incur.
5. The tax effectiveness of the business structure: Some structures like trusts are known to be very tax effective, however it doesn’t work for all families and businesses. Many variables comes to the tax effectiveness equation, mainly possible capital gain events, number of beneficiaries, their residency status, age and most importantly their current income tax bracket.
So what’s the right business structure for you? Get all the answers to your questions from experienced business tax accountants in Sydney.