Different Types of Business Structures in Australia

There are different structures, which you may choose from while expanding or starting your business. The four main kinds of business structures commonly used by the small business in Australia include sole trader, partnership, trust and company.

Sole traders are individuals who trade on their own. Partnership is an association of people who takes the responsibility of running the business together but not as a company. A company, on the other hand is a legal entity, which is separate from its shareholders. And trust is an entity, which holds income or property for benefit of the others. All of these business structures attract various legal as well as taxation consequences.

Compliance with the ATO requirements as well as calculation of right amount of the tax payable may differ depending in the structure of business.

Sole traders state their business loss or income in personal income tax returns and accordingly pay the taxes at the individual taxation rates. When ATO receives the income tax return for sole trader, company or partnership, they suggest the entrepreneurs to pay the PAYG installments. The installments that are paid are basically credited against income tax assessment, which are raised after you file the income tax return at end of each financial year.  Unless you start to pay the PAYG installments, you will need to do the budget for income tax. You can put your money in a separate account or you may even make an arrangement with ATO for making the voluntary payments.

Companies have their own liability when it comes to paying their income tax. They are to pay income taxes on their assessment income at company taxation rate. There isn’t any tax-free threshold for the companies. Directors, owners as well as office holders state the wages, salary, dividends and directors fees that they got from the firm on their pay tax and personal tax return as per individual taxation rates.

Partnership businesses are not liable to pay the tax but they should lodge a tax return. Rather, each of the partners is supposed to pay the tax on part of their share of partnership income as per individual taxation rates. The PAYG installments that are paid by the partners are usually accredited against their personal income tax evaluations.

Trusts hold income or property for benefit of the others. Usually, trusts have no liability of paying taxes. The entire amount of income that comes from trust is distributed to the beneficiaries. But each of the beneficiaries is supposed to pay tax when it comes to their own individual share of the net trust as per individual taxation rates.

So, when you are planning to decide upon your business structure, go for the one, which best suits your organization’s needs. Choosing one is an essential decision, which can determine the licenses you may need to operate. Obtaining professional advice from business startup consultants may help you in understanding your own circumstances.