Entity Setup
Entity Structures in Australia: What High-Net‐Worth Individuals Should Know
Choosing between trusts, companies or partnerships has long-term tax, control and estate implications. Here’s a detailed comparison with examples.
By NomadicTax Research Team • 5-8 min read • November 23, 2025
## 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.