Changing Business Structure

Your growing business is a blessing and you may need to make structural changes to support your success. However, as many small businesses change their structure from sole trader to a more complex company or trust structure, it can result in accidental errors with big consequences.

The common errors are:

  • reporting income for the wrong entity
  • claiming expenses incurred by another entity as business expenses
  • personal use of business bank accounts

Changing Structures Do’s and Dont’s

As a tax agent it is important that we remind all our small business clients, who have recently made the leap from sole trader to an incorporated entity, of the following do’s and don’t’s.

1. The company is a separate legal entity from yourself. Once you are incorporated, you must act as a Shareholder or Director and as such, you cannot treat the company as an extension of yourself.

2. The money that the company earns, belongs to the company.  Once again, you shouldn’t administer that money without appropriate documentation of your intention to receive and return company funds.

3. The company owns its assets and therefore you as a Director cannot treat them as your own.

4. If, as a Director or Shareholder of a company, you use company assets for your personal use, it must be treated as a benefit to the Director or Shareholder. Division 7A or fringe benefits tax could apply if not treated correctly.

If you move to a trust structure, it is important to understand the trustee’s responsibilities, including:

  • holding the trust property (including assets, investments and income) for the benefit of the beneficiaries
  • managing the trust’s tax affairs
  • paying the trust’s tax liabilities

It is important to note that when acting as a Director, Shareholder or Trustee, you are now carrying on a business on behalf of a company – not yourself.  And as such it is important to ensure that all transactions are documented with appropriate contracts and payment arrangements in place to substations loans, leases and drawings.

If you have any questions or need advice and clarity specific to your business, feel free to contact Semmens & Co on 03 8320 0320 for a free consultation.

Thoughts From Our Principals

Mark Semmens

Mark is a Chartered Accountant with a wealth of experience in accounting and taxation. Mark is a Member of Chartered Accountants Australia and New Zealand, the Tax Practitioners Board and the National Tax and Accountants Association.

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Daniela Semmens

Daniela Semmens is a Co-Director of Semmens & Co. and joined the company as General Manager in 2017. Daniela is an Affiliate Member of Chartered Accountants Australia and New Zealand and also a Member of the Australian Institute of Project Management.

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