What Australian business structure is the most tax efficient?

Choosing the right business structure to maximise your tax efficiency in Australia can be tough.

Choosing a tax-efficient business structure in Australia can make a significant difference to your bottom line.

But navigating the country's tax system, particularly as a start-up, can be challenging. How do you know what business structure is the most tax efficient?

Individual tax rates range from 0 per cent for those earning under $18,200 up to 45 per cent for people earning more than $180,000.

Experienced professionals at Geelong accounting firm WMC Accounting can help maximise tax efficiency for Australian start-ups and other businesses, so contact us today for tailored advice designed to fit your specific needs.

Here are a few tips to help you get started:

1. Know your growth plans

Most people going it alone have to choose between a sole trader or company structure. Sole traders pay an individual tax rate based on their income, while small businesses (turnover of less than $10 million) currently pay 27.5 per cent.

Individual tax rates range from 0 per cent for those earning under $18,200 up to 45 per cent for people earning more than $180,000. Therefore, choosing a tax-efficient business structure will depend on how much your business is earning now and what your future growth plans are.

As your revenues expand, a company structure will likely become more favourable, but check with expert tax accountants to confirm the best time to make the switch.

2. Be aware of structure-specific tax deductions

Each business structure has different tax deduction allowances. For example, companies are entitled to travel expenses and research and development discounts that aren't available to sole traders.

Travel deductions could have an impact on tax efficiency. Sole traders who frequently travel for work may gain from forming a company to maximise tax efficiency.

The impact these deductions have on your business could be significant if you work within specific industries or perform certain roles.

You should also consider the cost of selling your business. This incurs taxes, which you will be entirely responsible for as a sole trader. Companies, however, provide slightly more flexibility in how the process is handled, enabling you to better manage the costs.

3. Explore the benefits of trusts

Trusts can help you maximise tax efficiency, but they aren't suitable for all businesses.

This structure enables the trustees to have considerable control over how income is distributed to beneficiaries, enabling savvy business owners to minimise tax obligations.

However, trusts are complex and fairly expensive to set up and maintain. They tend to be popular with family businesses where a single very high-income individual can distribute their earnings as tax-efficiently as possible.

We hope this provides you with some guidance on what Australian business structure may be the best for you, but please get in touch today for more comprehensive tax and accounting services.

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