Entity Structures in Australia: What High-Net‐Worth Individuals Should Know

Overview of Business Entity Options

• Sole Trader: Simple setup, taxed personally, unlimited liability. Ideal for one-person freelancing.
• Partnership: Shared control, liability, and profits. Profits flow to partners who are taxed personally.
• Company: Separate legal entity, limited liability, flat 30% or lower rates for small business. Losses generally can’t be offset against personal income.
• Trust: Discretionary or unit trust structures useful for asset protection, estate planning and distributing income across beneficiaries.

Key Tax Implications & Planning Points

Trusts

• Discretionary trusts can distribute income in tax-efficient ways—e.g. to beneficiaries in lower tax brackets.
• Be aware of Division 7A when loans are made to beneficiaries or shareholders to avoid unintended taxing outcomes.

Companies

• Earnings retained in company taxed at the entity rate; dividends paid to shareholders may carry “franking credits,” reducing double taxation.
• Losses can be carried forward but only used if certain continuity tests are met.

Example: Asset Holding vs Income Generation

Suppose Maria owns a property that she expects to appreciate and generate rental income.

• Holding it in her personal name means rental income taxed at her marginal rate and capital gain subject to personal CGT rules.
• Holding via a company or trust may offer better income splitting, but CGT discounts may be lost (companies don’t get the 50% discount for individuals).

Regulatory & Compliance Traps to Avoid

• Maintain trustee resolutions and records; sloppy minutes can cost structure integrity.
• Companies must comply with ASIC and ATO rules on directors, annual returns, and financial statements.
• GST registration threshold (turnover $75,000) becomes mandatory once surpassed.

Action Plan for Structuring Well from Day One

1. Decide purpose: Is it for investment, trading or asset protection?
2. Forecast profits and cash flow: What’s the highest marginal tax rate you’d pay?
3. Compare cost of compliance: Trusts often need more administration.
4. Review rules like thin capitalisation, interest limitation, Global Anti Base Erosion (GloBE) for overseas operations.

Final Thoughts

Choosing the right structure is a strategic decision with implications for your tax exposure, estate, and legacy. Seek personal advice—these rules change frequently and depend heavily on your individual goals.