Article by Jane Tweedy, Business Advisor, Western Sydney Business Centre
Many small businesses are initially set up as a sole trader. This structure is the simplest, quickest and cheapest to set up. However it is not always the right long-term structure, and often not because of Limited Liability (which may not be so limited)! Set-up does not need to be set and forget, and if change is required, the new financial year can be good timing.
Business to business (B2B)
If you are a service provider and deal with other businesses, then operating under a company structure can have many benefits. Over the years the ATO and Fair Work have tightened their rules about what constitutes a contractor versus a “deemed employee”, and in ATO terms you may be surprised that as a sole trader, that two or three half days a month could see you deemed an employee of your client. (Google: ATO QC 33190). An easy way to avoid this complication is to use a company structure, and contract between the company and the other business for services.
Registering for GST allows you to issue a Tax Invoice rather than an Invoice, which is considered a must by some companies. You can register for GST under any structure, and although compulsory once your turnover hits $75,000 per annum, you can voluntarily register at any time (as a voluntary registrant you may not need to do quarterly BAS, but rather an annual return).
Changing from a sole trader to a company
There are checklists available that explain the process of setting up your new company, and transferring your existing business over.
There are other structures such as a partnership and various forms of trust that can be utilised, but they are of use more in special cases, when a relationship needs managing or tax advantages can be had.
Our business advisors can run through options with you, so you are armed with the right information to approach formal advisors such as accountants and lawyers to ensure the structure is right for your business going forward, and changes minimise any tax obligations.