In putting up an enterprise in Australia, the entrepreneur is advised to carefully plan and understand the different business entities and benefits in Australia as this will help him save time, money and effort.
1. Sole Trading
The most basic type of business structure and benefits in Australia is the sole trading. It is owned and managed by a single person who has the individual right to control the operations of his entity.
Setting up this kind of business requires the least start-up costs. A person who is interested in sole trading has the option on how much capital he wants to shell out.
Operating a sole proprietorship entity permits the owner to have all the profit rendered by the business.The income made by the venture is considered as the operator’s individual income hence, he is expected to pay the tax at personal income tax rates quarterly after his first year of managing the business. Australian residents are entitled to the tax-free threshold wherein they are exempted to pay the tax on their first $18200 profit.
In sole trading, struggles of business entities and downfall in Australia may happen whenacquired capital is not enough. The proprietor may find it difficult to expand his business, causing a limited profit.
The trader is also entitled to all the legal liabilities of his business as he and his entity is considered as one. Higher profit may be subjected to higher tax rates.
Partnership is another legal form of business wherein at least two but not exceeding 20 people contribute property, cash, and expertise in order to form an enterprise. These individuals are termed, “partners” who team up in managing and operating the business.
Commencing in this type of business entails low set-up costs but has more advantages in business structure and benefits in Australia than in the sole trading.Since more people will contribute to building up the enterprise more capital may be generated which may open doors for better business opportunities and higher profit.
Partnership management is shared by the partners and this may mean better planning and control of the business. Problems may be easily resolved and the entity may further be improved.
Profit and loss produced by this business entity is distributed among the partners, entitling them to share with the income tax as well. A partnership is required by the government to have its own Tax File Number (TFN) separate from its owners. This implies that each partner pays the tax in accordance to how much they receive on the net income of their business.
The pitfall in this business structure and downfall in Australia is that it does not have a separate legal entity. This means that both partners have unlimited liabilities, indicating that if the entity cannot pay for its debts, personal assets of the owners are used.
Assessments done by the operators can easily make or break the venture. Misunderstandings and arguments may arise among the partners which may put the business into jeopardy.
Partnerships are mandated by the law to report a partnership tax return every year. This must show all the income generated and expenses paid by the business, plus the share in the net income of each partner. In addition, Goods and Services Tax (GST) registration is required if the venture’s yearly GST turnover is $75000 or more.
The company is another type of business structure and benefits in Australia. Companies are of separate legal unit from the owners and are regulated by the Australian Securities & Investments Commission (ASIC).
Shareholders, the people who invest in companies, are entitled to the ownership based on how many shares they possess. With this, their liability is limited with their investments. In contrast with sole trading and partnership, companies are not easily dissolved by reasons of bankruptcy or death of a shareholder. In the event when he decides to sell his shares to another party, he can freely do so. He can even be hired in the company if the management decides that they want to have his services.
The rates of taxation are also more favorable in companies.
A corporation has a relatively complex design since the structure is more complicated. Many legal requirements are needed to set up this type of business. Companies need to register and apply for TFN and for the Australian Business Number (ABN) in compliance to the Corporations Act of 2001. The business also needs to enlist for GST if its yearly GST turnover is $75000 or more.
In agreement with the law, corporations need to file an income tax return every year which discloses all the income and gains, the losses and deductions and the income tax liabilities it is entitled to pay. Presently, the company tax rate is 30%.
The last form of business structure and benefits in Australia is the trust. This is a duty levied to a trustee to keep and hold an estate or asset for the beneficiaries according to the agreement in the trust deed.
A person benefits from trusts because it provides him with the asset protection and the tax planning and management that he needs. This structure also has variable ways of distributing assets and income among the beneficiaries.
Starting up a trust can be costly and like a company, the structure is complex. The controls of the trustees are often limited to the provisions of the deed and they are legally bonded for its operations.
In the same way as the companies, trusts need to file and apply for TFN, ABN and GST. Income tax liabilities depend on the type of trust, the provisions in the trust deed, and whether the beneficiaries share in the earned income.
In cases when the full net income is given to adult resident beneficiaries, the business entity has no tax liability. If the whole or part of the income is shared to either minors or non-residents, the trustee is then evaluated on behalf of the beneficiary. The beneficiaries are then required to show their share of net trust income and the tax liability to their personal tax returns. On the other hand, the trustee is also taxed according to the highest individual marginal rate when the trust earned an income.
Like the other business entities and benefits in Australia, trusts are required to file a tax return every year disclosing all the net income, including the share of the beneficiaries, and the expenses rendered by the venture.
In conclusion, the success of the business structure and benefits in Australia will greatly depend on how the proprietor manages and controls his business and the proper selection of the form of organization he wants to put up.