One of the most consequential decisions a new business owner makes — often without realising its long-term weight — is which business structure to register under. Each carries different tax obligations, and professional tax accounting services in Perth typically start here, before any transaction has even occurred.

Sole Trader

Operating as a sole trader is the simplest structure to set up, with the business’s income taxed as part of your personal income at your individual marginal tax rate.

Tax accounting considerations:

  • No separate tax return for the business — it’s reported within your individual return
  • You can claim legitimate business expenses against income
  • No distinction between business and personal assets for liability purposes — this is a liability consideration more than a tax one, but it’s often part of the same conversation
  • Simpler compliance requirements compared to a company structure

Best suited for: Freelancers, contractors, and small-scale businesses just starting out, particularly where liability risk is limited.

Partnership

A partnership involves two or more people running a business together, with income and losses distributed between partners according to the partnership agreement.

Tax accounting considerations:

  • The partnership itself lodges an information return, but doesn’t pay tax directly — each partner pays tax on their share of the income at their individual rate
  • Requires a clear partnership agreement covering profit distribution, especially important if partners contribute unevenly

Best suited for: Businesses with multiple owners who want a relatively simple structure without the compliance overhead of a company.

Company

A company is a separate legal entity from its owners, taxed at the company tax rate rather than individual marginal rates.

Tax accounting considerations:

  • The company lodges its own tax return and pays tax at the company rate
  • Profits distributed to shareholders as dividends may carry franking credits, affecting the shareholder’s own tax position
  • More complex compliance requirements — including ASIC obligations alongside standard ATO reporting
  • Can offer liability protection that sole trader and partnership structures don’t provide, though this is a legal rather than tax consideration

Best suited for: Growing businesses seeking liability protection, businesses planning to bring in investors, or situations where the company tax rate offers a genuine tax advantage over individual rates.

Trust

A trust holds assets or runs a business on behalf of beneficiaries, with a trustee responsible for managing it according to the trust deed.

Tax accounting considerations:

  • Trust income is typically distributed to beneficiaries, who then pay tax on it at their individual rates — this can offer flexibility in managing overall family tax outcomes, depending on beneficiaries’ circumstances
  • Undistributed trust income can be taxed at a higher rate, making distribution decisions an important annual consideration
  • More complex to establish and administer than a sole trader or partnership structure

Best suited for: Family businesses, asset protection scenarios, and situations where flexible income distribution among family members offers a genuine tax planning advantage.

Changing Structure as Your Business Evolves

It’s worth normalising the idea that a business structure isn’t necessarily permanent. Many businesses start as a sole trader, then transition to a company structure once revenue, liability exposure, or growth plans justify the added complexity. This transition is more involved than an initial setup — it can carry its own tax and legal implications — but it’s a well-established path, and planning for it in advance is far smoother than reacting to it under pressure.

The Role of Asset Protection Alongside Tax Considerations

While this discussion has focused on tax implications, it’s worth noting that business structure decisions often involve asset protection considerations too — particularly for businesses in higher-risk industries. A structure that offers slightly less tax efficiency but meaningfully better liability protection may still be the right overall choice, depending on your risk profile. This is exactly why structure decisions benefit from a broader conversation with your accountant, rather than optimising purely for the lowest tax outcome.

Why This Decision Matters From Day One

Restructuring a business after it’s already operating is possible, but it’s considerably more complex, time-consuming, and often costly compared to choosing the right structure from the outset. This is exactly why tax accountants in Perth typically raise this conversation before a new business registers, not after.

Questions to Discuss With Your Accountant Before Registering

  • What’s my realistic liability exposure in this line of business?
  • Am I planning to bring in partners or investors down the track?
  • Does my income level make the company tax rate genuinely advantageous compared to my individual rate?
  • Will I have family members who could benefit from a trust’s flexible income distribution?
  • How much compliance complexity am I genuinely prepared to manage?

It’s Not a “Set and Forget” Decision

As a business grows, the structure that made sense at the start may no longer be optimal. Periodic review — particularly around significant income growth, taking on investors, or approaching retirement — is worth discussing with your accountant, even if it doesn’t result in an immediate change.

Final Thoughts

There’s no universally “best” business structure — the right choice depends on your specific liability exposure, growth plans, and tax position. Getting professional guidance before registering, rather than after operating for a year or two under the wrong structure, saves both money and complexity.

TFP Tax Accountants provides professional tax accounting services in Perth, including business structure advice for new and growing businesses. Get in touch before registering your next business venture.