• You need to understand how your business will be taxed and how to minimise the amount of tax you pay. This includes tax concessions that may be available to your business.
• The choice of business structure can have significant consequences on the amount of tax your business pays. It can also significantly affect the amount of tax paid by other people and organisations who are intended to benefit from the business.
• Choosing an appropriate business structure will be the most effective way to minimise tax.

A) Sole Trader

• If you are a sole trader/proprietor any income from the business is treated by the Australian Tax Office (ATO) as part of your individual assessable income. The income will be taxed at personal income tax rates.

B) Partnerships

• For partnerships an annual partnership tax return must be lodged with the ATO but it is not the partnership itself that pays tax. Each of the partners are required to declare their share of the net partnership income as part of their own tax return. Whether each partner is an individual, company or other business type will therefore determine the tax.
• If your business is a company operating a joint partnership the applicable tax rate will be the company tax rate (30%). If you are participating in a partnership as a sole proprietor or individual then the applicable tax rate with be that for individuals.

C) Companies

• As a company is considered a separate legal entity the profit is made by the company itself rather than the individuals running the business.
• Companies must therefore lodge their own company tax return each year and pay tax at a flat rate of 30%.

D) Trusts

• There is no definite rule for the taxation of trusts. How a trust is taxed depends on:

• what kind of trust it is;
• the wording of the trust deed; and
• whether the trust has earned any income for the relevant time period.

• The trustee must file a tax return on behalf of the trust each year. If the trust does make an income and distributions are made to beneficiaries then the beneficiaries pay tax on the distributed amount. The rate at which a beneficiary is taxed will depend on whether that beneficiary is:

• an individual or sole trader;
• a company; or
• a trust.

• If trust income is not distributed it will often be taxed at a higher rate than the individual tax rate.