For many Australians, changing from sole trader to a company is often a major decision prompted by business growth and development. If you are contemplating a shift from sole trader to a company, it’s important to consult an experienced tax and accounting professional about the implications of such a change.
The type of business structure you have will determine your tax obligations, exposure to business debts, and other legal requirements for maintaining your business. Here are the key differences between a sole trader and a company for you to consider:
A sole trader is taxed as an individual and enjoys a tax-free threshold of $18,200. You only lodge one tax return as a sole trader. On the other hand, a company is taxed at a straight rate of 28.5% of its net income, without the benefit of a tax-free threshold. The company director must lodge two income tax returns, an individual tax return and a company tax return. If the company director receives fringe benefits, then he must also lodge a fringe benefit tax return.
Personal liability as business owner
A sole trader is personally liable for financial and tax obligations of the business. This means that your business creditors can go after your personal assets to pay for business debts. A company director’s personal assets are generally shielded from corporate creditors except in certain situations such as tax debts and for obligations arising from Pay As You Go (PAYG) withholding.
Paperwork and ongoing costs
A company is required to prepare and keep more paperwork such as minutes of company resolutions and financial statements. It is also subject to annual review by the Australian Securities and Investments Commission (ASIC) and the corresponding annual review fees. Both the sole trader and company are required to pay business name registration fees periodically.
Requirements for changing your business structure
Once you decide that changing into a company is the next phase in your business, you need to cancel your ABN and apply for a new one and take several steps to register your new business structure. At ATP Tax Accountants Pty. Ltd., our experienced tax professionals can help you set up your new company or change to a company. Our team of friendly and professional accountants has been helping individuals and businesses throughout Western Sydney with their accounting, taxation, and business planning needs.
Contact ATP Tax Accountants
Call us during business hours at 1300 829 484 to learn more about how we can help you, or email us any time.