Tax Structuring for Business & Investment

When establishing a new business, there are multiple options on how to structure it to your best advantage. There are a number of options including structuring as a sole trader, partnership, company or trust.

Business Structures

Sole Trader

This is the most basic business structure in which you may operate as an individual with your own ABN. In regards to tax structuring, both your individual tax and business tax are consolidated and considered one. 

Partnership

A partnership is most appropriate when conducting business with one or more people. Whilst the set up costs can be inexpensive like the sole trader, there are challenges relating to the liability of both parties. You will likely have an increased resource pool but you will also be responsible for all debts incurred by the partnership. Personal assets may come into play to reconcile a debt if one party cannot pay it. Similarly to a sole trader, the business as a whole won’t pay any income tax; instead each partner is taxed according to his or her portion of partnership income.

Company

The decision to establish a company over other smaller legal structures means that your business becomes a separate legal entity entirely. Instead of being regulated by the Australia Tax Office, the company is regulated by the Australian Securities and Investments Commission. The advantages of an incorporated company are an increased access to capital to fund the operation of your company as people can buy shares within it. Some considerations to make are the PAYG instalments that will need to be made consistently through out the year, a yearly income tax return (for the business) and a GST that must be deducted if the company earns over a certain amount.

Investment Structures

Investment structures relate to how individuals can invest within a certain business structure. It directly relates to how your investments are legally owned. As addressed above, they can be owned through structures such as a sole trader, partnership or company. By implementing a certain business structure, it transfers the ownership of certain assets from individual ownership to joint or incorporated ownership.

Other forms of investment structures are trusts and superannuation funds that can own certain assets to provide beneficial management of them.

Bookkeeping, Accounting & Tax Compliance

Running a business means keeping track of your spending, paying your tax and a variety of other intricate tasks. When first establishing a business, it is important to decide whether you will commit to taking on these tasks or to put them in the hands of a trusted professional.

The kinds of tasks we’re talking about are keep records, sorting out the payroll, reconciling bank accounts and managing the accounts payable and receivable. 

What’s the difference between Bookkeeping and Accounting?

Bookkeeping is a primary portion of accounting. It comprises of the gathering, organising and recording the financial details of a legal entity. This contributes to the daily operations of a successful business and requires the bookkeeper to draft financial statements, tax returns and keep record of the internal financial movements of the business.

Accounting is the umbrella term responsible for the overall establishment of financial controls to ensure that the business has a smooth system of operation. Additionally, accounting also involves financial reporting and measuring the performance of the entity itself based on this information. Accounts are also responsible for generating reports based on this information in the form of financial statements, tax returns and other documents. This is where the roles of bookkeepers and accountants intersect; bookkeepers provide the daily reported information and accounts assess this information and transform it into a yearly summary. 

Tax Compliance

Tax compliance and regulation can be as dry as it sounds. It can also be time consuming and complex.

As a functioning business, it is essential to receive advice on all tax and superannuation matters. This ensures that you are lodging your business tax returns correctly, on time and with the expectation of a good return. The complicated nature of our taxation systems means that businesses must remain updated on new applicable laws. When running a business, tax considerations can often be the last thing on the to-do list and by enlisting a tax professional; you’ll stay up to date and compliant.

Bookkeeping, accounting and tax compliance are all inextricably linked to ensure that businesses are operating effectively and in line with legal regulations. The intricacies of each skill are well known to professional advisors who will provide accurate information and services for your individual or business needs.

Superannuation - SMSF Advisory

Australia has strong regulations around superannuation to ensure that our ageing population has the means to live when they retire. It’s often easier to pass over the management of your fund to a bank or super provider so you don’t have to think about where the best investment is being made. In turn, you can rely on them to invest wisely and receive gradual return. 

For others who want to be a bit more financially savvy, self-managed super funds (SMSF) are an option. SMSFs are a legal tax structure and are similar to a regular super fund in that they have the primary purpose of providing your retirement and are under the same regulations by the Australian Tax Office.

However, choosing to manage your own super fund can be complex and time consuming. Some of the ongoing obligations including acting in the role of trustee or director, plan and implement an investment strategy that will help you achieve your retirement needs and keeping detailed records and audits per year.

Some of the things to consider when you’re establishing an SMSF are:

•    Pre-existing sum of money in the fund to reconcile the set up and yearly running costs
•    Budgeting for ongoing expenses such as professional accounting, tax compliance, auditing, legal and financial advice
•    Factoring in considerable time to manage the fund and research investments
•    Staying up to date with changes in the law that need to be reflected within your super fund.

Many SMSFs can be managed by advisors for a fee, which may be equivalent to the time, and money spent managing the fund yourself. The benefit of the SMSFs is the freedom and flexibility to invest in what you choose as opposed to being confined by limited gain from larger providers. 

If you’re thinking about taking the leap into a SMSF, take a look at this video created by the Australian Tax Office explaining what’s involved with managing an SMSF.

Business Succession & Estate Planning

The key to successful business succession and estate planning is to have clear instructions that adequately reflect the party’s intention in how their business or property may be divided, passed on, donated or used. More often than not, individuals may find themselves in a situation with no knowledge or experience of how to execute these plans.

Business Succession

Business succession is the process of providing for an easy transferral of a business from one party (owner) to another. In doing so, there are some barriers that may inhibit this success including the continual operation of the business and maintaining pre-existing relationships. Additionally, trying to limit the incurrence of fees such as tax and stamp duty is tricky.

Like most successful business ventures, you must have a plan.

This plan needs to provide strategies of implementation of how you will transition from one business to the next. This plan will include how to solidify and maintain the value of the business as it stands to ensure the same business is delivered to the next party. It must also have instructions on how you intend to change the ownership without incurring many costs.

Often this can be a job for a professional who can assist with intricacies of business succession.

Estate Planning

Thinking about how you want your estate divided can be a complicated process. More so when there are many parties to consider such as spouses, children, relatives and the like. At the transferral of estate there will always be challenges and therefore it is important to implement an effective plan that minimises confusion of parties and sets our clear instructions.

Some considerations to make with the help of a professional relate to limiting tax payable, transferral of appropriate assets to the allocated beneficiaries and the protection of assets in the event of legal complications. Whilst families may agree prior to the event that there will be no animosity and complications, estate planning provides a secure and safe representation of how you wish your estate to be passed on.