The Relationship Between Taxation And Business Structure

Posted on: 31 March 2015

Choosing the right business structure is vital in ensuring that the profits are maximized and liabilities minimized. There are varied setups but the common basic forms for start-ups are sole trading, partnerships and incorporated companies. As your business grows, you can change the business structure to match with the size and nature of the enterprise. You should ensure that your growth plan takes into account the most ideal setup at each level. There are specific tax implications for each structure and this will be reflected in the profits and subsequently in your income. Here is some basic information to help you understand the relationship between taxation and your chosen business setup.

Sole Trader

The sole trader operates and manages all the aspects of the business on their own; therefore it is the simplest structure. In terms of taxation, your personal and business finances will not be separated if you choose this form. An Australian Business Number is required for your business to be official but generally, the structure is undemanding and inexpensive. Your personal tax file number will be utilized for lodging the returns since the business profits are treated as your income. The rate applied in determining the cumulative tax is the personal income rate. Pay As You Go (PAYG) installments and registration for goods and services tax may be necessary, so discuss these possibilities with your tax consultant.


The partnership structure is favourable because it allows you to share the financial burden with other individuals. The partners will divide the responsibilities and profits as well as the losses, so the setup is relatively cheap for each person. The business will not pay tax, but you will be required pay tax on your share of the profits after the deductions. However, the partnership is obligated to lodge an accurate tax return that provides information on total income, claimed deductions and personal income and tax for each associate. PAYG installments are not required for the partnership but the regulations may apply to individual partners.


An incorporated company is expensive to set up because the business is established as an independent legal unit. Basically, the enterprise will have a separate bank account as well as a tax file number and tax-free thresholds do not apply. The tax reporting work is extensive so qualified consultants will be required. Business tax returns will need to be lodged and they must include income, tax liability and deductions. Moreover, PAYG is mandatory and the assessable profits are subject to the company tax rate.

For more information, contact a tax consultant like Goodall & Co.


Accountancy: Counting Together

Hello, my name is Stuart and I live in Sydney, Australia and this is my accountancy blog. I have always loved numbers. When I was a little kid, my granddad would sit me on his knee and make me recall the times tables. I also remember counting all the money in my piggy bank and my dad explaining the concept of compound interest to me. Although I didn't enter the accountancy trade, I still keep in close contact with the industry and like to keep up with what is going on. I hope you find this blog very useful and that it helps you to save a little money one way or another!



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