Explain the Best Structure for Small Business – Company vs Family Trust?
Selecting the right structure for a small business is a priority for every Australian. Often, there are two common structures: a company and a family trust business. However, both have different tax obligations, management advantages, and asset protection. But the workings of these two are distinct, so knowing the difference before selection is crucial. Here, Kirpa Tax Accounting Firm is pinning down the Company vs Family Trust Epping comparison. Thus, going through it thoroughly can empower your right decision. So, let it be clear with proper understanding so that you won’t have to regret later.
- Save More Tax with Right Structure
When it comes to tax obligations, a company pays tax at a flat rate of 25%. But when you want to take money out for personal use, it is necessary to pay dividends. With franking credits, those dividends are taxed in your personal name. Hence, you may have to pay tax at the individual rate, which ranges from 32 to 45 percent. If you form a family trust, it won’t pay the tax itself but distribute profits among members. The trustee can distribute profits among low-income individuals to pay less than a company. This is the key consideration of Family Trust vs Company Epping.
- Considering Safer Asset Protection
A company is a separate legal entity, so it has a high degree of limited liability when it comes to assets. If someone sues your business, it means your personal property, such as your house, is protected. However, you must not give a personal guarantee to a bank for a loan, which small businesses generally do. A family trust is considered the gold standard for asset protection among small Aussie businesses. Assets of trust are owned by the trustee, so you can’t claim personal ownership of them. If you are sued personally, the trust owns the assets, so they are protected, as you can’t claim.
- Opting for the Profit Distribution Flexibility
The selection of Small Business Structure Company or Trust Epping depends on this factor as well. Company profits are distributed as per shareholding to its shareholders. For example, you get 100% dividend if you hold 100% shares of the company. Whereas profit distribution of a family trust is variable every year, as you can decide how it is distributed. You can split 70/30 profit between you and your spouse. Another year, you can decide to split the profit 50/50 among both of you. This is why most husbands and wives in small businesses choose a family trust structure.
Make the Exact Decision with Expert Advice & Reference
Choosing between a company and a family trust is an important decision that you should make beyond tax rates. Before choosing, you must consider liability, profit distribution, ownership, growth, and administration. If you are seeking lesser liability, a company is a good choice. But if you want profit distribution flexibility, a trust is the right structure. Before establishing the required structure, take advice from a Qualified Accountant Epping. You can consult Kirpa Tax Accounting Firm to assess your circumstances and get an explanation before making a decision.
FAQ’s
Is a family trust better than a company for a small business?
Not necessarily, since the right structure depends on various factors such as income, risk, and ownership. Consider Company vs Family Trust Epping to make the final decision.
Does a family trust need to pay tax in Australia?
Yes, a trust has tax obligations and its income is assessed to beneficiaries. In particular circumstances, there may be different rules applicable.
Does a company have limited liability if something goes wrong?
Since a company is a separate legal entity, its shareholders have limited liability. This is an important aspect of Family Trust vs Company Epping.
Is a family trust allowed to operate a business in Australia?
A family trust can operate a business through its trustee if the structure is legally established. Well, the trustee must administer the trust properly for business.
Can I manage a company and family trust structure together?
Yes, you can consider both structures together to run the business. However, it can increase your tax compliance, legal accounting, and administration complexity.
Which small business structure is good for tax saving?
The outcome depends on how much income your business earns. Small Business Structure Company or Trust Epping. Income depends on distributions and the circumstances of beneficiaries.
Why should I consult with a professional tax accountant?
A Qualified Accountant Epping at Kirpa Tax compares tax, administration, and compliance. Legal advice from professionals is useful for selecting a suitable business structure.