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Business Tax Tip – Types of Business Structure in Australia – How profit is handled and taxed
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Published on Thursday, 29 November 2018 09:32
A regular review of the type of business structure you have in Australia and how the profit is handled and taxed each tax year is what your tax agent can help you with.
If you are starting a new business the question becomes whether using a sole trader, partnership or company to operate is best. Having a company has some tax and commercial benefits eg many other businesses prefer dealing with companies rather than individuals or trusts, but for a small business it could be cheaper to operate as an individual.
Eg for tax year 18-19 – 32.5% individual marginal tax rate (34.5% including Medicare) does NOT apply to ALL the income, but applies to income between $37,001 to $90,000
(Income is tax free up to $18,200,
19% on $18,201 to $$37,000,
37% on $90,001 to $180,000 and the top marginal tax rate of
45% applies above $180,000)
But the company tax rate of 30% applies to the FULL $amount!
Tax comparison -
On $50,000, the individual pays $8,797 (tax inc Medicare)
On $50,000, company profit, the 30% tax is $15,000 – nearly double!
On $100,000, the individual pays $26,500 (tax inc Medicare)
On $100,000, company profit, the 30% tax is $30,000 – !
If the individual earns $120,000 the tax is over $34,000! So a couple with a family business can have an annual net income just over $200,000 before their salaries will be worse off due to more tax if they retain profits in the company and pay tax there.
As always, seek a tax professional to see what is best for your situation – and review profits in late April May to decide if Director Bonuses may be better, than leaving profits to pay tax in the company!
It’s a juggling act sometimes!
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Call and you also get FREE “Avoid these GST mistakes” – There’s 18 that the Tax Office see regularly – Get them right!
Email info@accountkeepingplus.com.au or call 0407 361 596 Australia
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