- Simple and cheap to establish and run
- Speed and flexibility of changes.
- Can use tax free and low marginal tax rates for new or small businesses.
- Owner takes all profits and has access to all taxable losses.
- Not a separate entity so taking money from business account has no tax consequences.
- Less ATO compliance requirements – Individual Tax Return.
- Unlimited liability on sole owner (not much asset protection).
- Customers or Suppliers may prefer to deal with business structures.
- Cannot bring in business partners, would require a new entity.
- Taxed at individual tax rates so the more profit you make the more tax liability you will have.
- Separate legal entity – asset protection through separation of operation and ownership.
- Can bring in business partners by way of selling shares.
- Tax rate is a flat 25%, lower than most individuals.
- Can use franking credits to pay dividends.
- Cost of set up and ongoing maintenance.
- Extra layer of regulations through ASIC.
- Directors have obligations that must be met.
- Pay tax from the first dollar of profit.
- Severe penalties for trading while insolvent.
- Income is distributed at trustee’s discretion to beneficiaries so provides tax planning opportunities. (Although the ATO is making this harder)
- If trustee is a company, liability is limited much the same as a company.
- Separate legal entity.
- Intergenerational use.
- Cost of set up and maintenance especially if using company as trustee.
- Must distribute all profit to beneficiaries even if profit has not been or cannot be physically paid.
- If individual is trustee can be liable for trusts debts.
- Must adhere to trust deed and can be expensive to change deed when needed.
- Life is limited to time frame in Trust Deed, generally 80 years.
If you are just starting out on your business journey or if you are wondering whether your current structure is right for you we would love to have a chat about what is the best structure for you.