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Business Structures - Start with the end in Mind |
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Business structures: Start with the end in Mind When choosing a suitable business structure to conduct your business, consider what will be the consequences when you decide to sell it and/or retire. There are a number of legal structures which can be used to carry on your business. They do not all share the same characteristics with respect to liability, asset protection, succession and taxation. One structure may be more favourable to your situation. Furthermore, with the recent introduction of Workchoices, which only applies to corporations, the law applying to your employees will be determined by the structure you adopt. Each structure has their advantages and disadvantages so in selecting the best structure it is a matter of weighing up the competing considerations. We can help you make that decision based on our knowledge and experience. It is essential that careful consideration be given to the legal structure you select prior to acquiring or starting up a new business. Changing structures can be expensive and complicated. The Structures The business structures which are commonly used to carry on a business are:
Liability Different legal consequences with respect to liability apply to these different types of structures.
Tax consequences on disposal The Discount under Division 115 Income Tax Assessment Act ( ITAA): A 50% discount in respect of capital gains tax is available to certain taxpayers who derive a capital gain from an asset held for more than 12 months (Division 115) . However the discount does NOT apply to companies. It applies only to individuals (including partnerships), and trusts. This is an example of how a decision on the structure of the business needs to be made at the beginning of the business to avail oneself of the tax advantages of particular structures. The Small Business Concessions: The 4 concessions on CGT under Division 152 Income Tax Assessment Act (ITAA) are:
By way of example, a qualifying asset bought for $1m and sold for $2m after 12 months would attract tax on $500,000 and not the full $1m profit. If the vendor aged 55 or over was selling his business and retiring, no tax would be payable after utilising the 12 month discount, the small business discount and the retirement deduction. If the vendor is under 55 years of age, the amount must be paid into a superannuation (or similar) fund. The asset must be an “active asset” i.e. an asset used in producing the capital gain. For example goodwill of a business. In contrast, a passive investment property is not an active asset. There is a deal of detail and complexity in the application of the concessions and we can go through this with you depending on your circumstances. The information in this article is general only and should not be relied upon without first consulting us. For further inquiries please contact David Beale - email: dbeale@rbhm.com.au
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