Entity Setup
Entity Setup Essentials: Choosing the Right Structure in Australia for 2025
A clear guide to selecting the optimal legal structure for your business in Australia as regulatory and tax incentives evolve.
By NomadicTax Research Team • 5-8 min read • November 22, 2025
## Introduction
Starting a business in Australia means selecting a structure that optimises tax, protects personal assets, and aligns with long-term goals. Recent policy changes concerning **superannuation concessions**, GST, and business compliance underscore the importance of structuring carefully.
## Key business structures and their tax implications
| Structure | How Income Is Taxed | Liability | Suitable For |
|---|---|---|---|
| **Sole trader** | Owner includes business income in personal tax return; marginal rates apply | Unlimited | Single owners with low risk and simple operation |
| **Partnership** | Partners share taxable income; taxed personally | Jointly liable | Professionals or small groups sharing operations |
| **Company** | Flat rate (25-30% depending on size) on profits; dividends may incur franking credits | Limited | High revenue potential; investors; liability protections |
| **Trust (including family trust or discretionary trust)** | Trust distributions taxed in hands of beneficiaries; company tax rate if retained in corporate beneficiary | Depends on trust deed | Asset protection; intergenerational planning; income splitting |
## Recent policy developments affecting entity choice
- The government’s announcement on 13 October 2025 to **boost the Low Income Superannuation Tax Offset (LISTO)** and adjust the **Better Targeted Superannuation Concessions (BTSC)** carries implications for entities and individuals with large super balances or those relying on trusts. Entities backing individuals (like sole traders or partners) need to consider how super contributions factor into net tax position. ([treasury.gov.au](https://treasury.gov.au/policy-topics/superannuation/reforms-support-low-income-workers-build-stronger-super-system?utm_source=openai))
- Consultations opened 26 October 2025 on **amending legislation related to international taxation – global and domestic minimum tax rules**. For companies in multinational groups or those planning foreign operations, these changes could affect decision on where to hold intellectual property or where to locate entities. ([consult.treasury.gov.au](https://consult.treasury.gov.au/c2025-712347?utm_source=openai))
## Actionable steps when choosing your structure
1. **Forecast income and profits**: If expected profits are modest, a sole trader or partnership might suffice; but if you expect large profits or plan to retain earnings, a company can offer corporate tax rate benefits and franking credits.
2. **Consider liability**: Company or trust structures limit personal liability. For high-risk ventures, limited liability is invaluable.
3. **Account for super and retirement savings**:
- With upcoming changes to LISTO and BTSC (effective **1 July 2027**) increasing support for low income super contributions and targeting high balance earnings, individuals in entities must balance salary vs distributions to maximise super tax concessions. ([treasury.gov.au](https://treasury.gov.au/policy-topics/superannuation/reforms-support-low-income-workers-build-stronger-super-system?utm_source=openai))
- Entities should structure remuneration and profit distribution mindful of super legislation and thresholds.
4. **Plan for foreign and international exposure**:
- Global minimum tax rules setting a floor at **15% for large multinationals** with revenue over approx EUR 750 million (≈A$1.2 billion) will affect entities with cross-border operations. ([ministers.treasury.gov.au](https://ministers.treasury.gov.au/ministers/andrew-leigh-2022/media-releases/implementing-minimum-tax-multinationals?utm_source=openai))
- Trusts or companies with foreign beneficiaries or owners should monitor withholding tax changes, consult guidelines, and ensure compliance.
5. **Evaluate administrative burden and costs**:
- Companies and trusts require more record-keeping, reporting, possibly audited financials, compliance with ASIC and ATO.
- Assess cashflow to handle compliance costs.
## Example scenario
**Sarah** plans to launch a design studio expected to earn A$400,000 in profit annually in 2026. She wants liability protection and plans to retain earnings for expansion, but also assist her spouse, with lower taxable income.
- If Sarah sets up a **company**, profits taxed at company rate; retained earnings avoid personal marginal rates, limited liability. Dividends to her spouse could leverage franking credits if appropriate. Must also consider global minimum tax if part of group.
- If she sets up a **trust**, profits can be distributed flexibly between beneficiaries (e.g. spouse), which may optimise marginal tax rates. But trust must be managed carefully; potential challenges around distribution timing and beneficiary eligibility.
- Sole trader or partnership might be simpler but unlikely optimal at that profit level due to high personal marginal tax rates and liability exposure.
## Conclusion
Choosing the right structure in Australia requires balancing profit expectations, liability risk, retirement/super strategies, and foreign exposure. With changes like boosted super offsets (LISTO), stricter minimum tax rules on large multinationals, and evolving super concessions, entity selection is more critical than ever.
Consult with a tax accountant early, keep updated on legislation in the coming years, and ensure your structure evolves as your business grows.