Choosing the right business structure is one of the most important decisions you’ll make when starting or growing a business.

While many people focus on tax outcomes, the right structure can also influence your personal asset protection, future growth opportunities, succession planning, and long-term business goals.

There is no single structure that suits every business owner. The right choice depends on factors such as your industry, appetite for risk, future plans, family circumstances, and expected business growth.

Recent discussions surrounding the Federal Budget have also brought renewed attention to trusts, capital gains tax (CGT), and business structures, encouraging many business owners to review whether their current setup remains appropriate.

In this guide, we’ll compare the three most common business structures in Australia—Sole Trader, Company, and Family Trust—and explain what recent tax discussions could mean for small business owners.

What Determines the Right Business Structure?

Before recommending a business structure, accountants typically ask several important questions, including:

• What are your long-term business goals?
• Do you plan to remain a sole operator or employ staff?
• What industry are you in?
• How much commercial risk does your business carry?
• Do you already own personal assets?
• Will family members be involved in the business?

The answers to these questions often have a greater impact on choosing the right structure than tax considerations alone.

For example, a sole trader operating as a freelance graphic designer may have very different needs from a commercial builder employing dozens of staff and managing large construction projects.

Understanding the Three Main Business Structures

Most Australian businesses operate under one of three common structures:

• Sole Trader
• Company
• Family Trust

Each has its own advantages, disadvantages, and tax considerations.

Sole Trader

For many people starting a business, becoming a sole trader is the simplest option.

It is inexpensive to establish, easy to administer, and requires relatively little ongoing compliance. Obtaining an Australian Business Number (ABN) is straightforward, allowing many businesses to begin operating almost immediately.

Advantages

• Simple and inexpensive to establish
• Lower accounting and compliance costs
• Minimal administration
• Suitable for smaller or lower-risk businesses

Considerations

Although simple, a sole trader structure also carries important risks.

Unlimited Personal Liability

A sole trader and the business are legally the same entity.

If the business incurs debts or legal claims, your personal assets—including your home and savings—may be exposed.

The level of risk often depends on the type of work performed.

For example, a freelance designer may operate with relatively low commercial risk, while builders, medical professionals, or businesses undertaking major projects generally face significantly higher levels of liability.

As business risk increases, many owners begin considering more protective structures.

Individual Tax Rates

Business profits are taxed at the individual’s marginal tax rate.

Higher-income earners may ultimately pay tax at the highest marginal rate, making this structure less tax-efficient for some growing businesses.

Company

A company is a separate legal entity from its owners.

Unlike a sole trader, the company enters into contracts, owns assets, and assumes responsibility for its own obligations.

Advantages

Limited Liability

One of the primary benefits of operating through a company is limited liability.

Provided directors comply with their legal obligations, the company’s liabilities generally remain separate from the personal assets of its shareholders and directors.

This separation is commonly referred to as the corporate veil.

However, directors should remember that protections do not apply in every circumstance. Fraud, insolvent trading, and breaches of directors’ duties may still create personal liability.

Potential Tax Planning Opportunities

Eligible small businesses may access the lower corporate tax rate.

Companies can also provide greater flexibility around profit retention and future business growth, although strict taxation rules apply.

Business owners should not assume that all profits can simply remain inside the company indefinitely. Various provisions, including Division 7A and other ATO rules, may affect how profits are retained or distributed.

When Might a Company Be Appropriate?

A company may be suitable where a business owner:

• Plans to employ staff
• Operates in a higher-risk industry
• Expects significant business growth
• Wants stronger personal asset protection
• Intends to build a larger commercial enterprise

Family Trust

A Family Trust has traditionally been one of Australia’s most popular structures for family-owned businesses.

Unlike a company, a trust generally distributes income to beneficiaries, who then pay tax according to their own circumstances.

Historically, this has provided flexibility when legitimately managing family income and business profits.

However, recent Federal Budget discussions and proposed tax reforms have created uncertainty around some trust planning strategies.

Why Have Family Trusts Become a Major Topic?

Recent government announcements have proposed changes affecting certain trust arrangements.

Much of the discussion centres on:

• Trust taxation
• Income distribution
• Corporate beneficiaries (“bucket companies”)
• Proposed changes to Capital Gains Tax

Although the final legislative position continues to evolve, many business owners are reviewing their existing structures with their accountants.

For businesses currently operating through trusts, understanding these developments has become increasingly important before making long-term decisions.

Understanding the Bendel Case

One of the most widely discussed tax cases in recent years has been the Bendel decision.

The case focused on how trusts distribute income to corporate beneficiaries.

Historically, the Australian Taxation Office treated certain unpaid trust distributions as Division 7A loans, potentially creating additional tax obligations.

However, the High Court ultimately ruled in favour of the taxpayer, creating significant discussion throughout the accounting profession.

Following the decision, the Federal Government announced further measures affecting trust taxation and related planning strategies.

As a result, many traditional approaches involving family trusts and bucket companies are now being reviewed by accountants across Australia.

For business owners, the key takeaway is not the legal complexity of the case itself, but rather that trust planning is becoming increasingly complex and should be reviewed regularly as legislation evolves.

Why Does This Matter for Small Business Owners?

Business structures influence much more than annual tax returns.

They can affect:

• Personal asset protection
• Business growth opportunities
• Financing arrangements
• Succession planning
• Business sales
• Investment decisions
• Family wealth planning

Many family businesses have historically used trusts because multiple family members contribute to the operation of the business.

For example, one spouse may manage day-to-day operations while the other handles administration, bookkeeping, or finance.

Because every business is different, reviewing your structure periodically helps ensure it continues to support your commercial objectives while remaining compliant with changing legislation.

Capital Gains Tax (CGT) Considerations for Business Owners

Beyond choosing the right business structure, many business owners are also paying closer attention to proposed changes to Australia’s Capital Gains Tax (CGT) system.

Although much of the public discussion has focused on property investors, the potential implications extend to business owners planning to eventually sell their business or other capital assets.

One of the most widely discussed proposals is the removal of the general 50% CGT discount for eligible assets held for more than 12 months, replacing it with an inflation indexation approach.

If implemented, these changes could significantly alter how capital gains are calculated when selling businesses, investment properties, or shares.

Importantly, the Small Business CGT Concessions continue to exist separately and may still provide valuable tax relief for eligible business owners.

Understanding the Small Business CGT Concessions

While proposed reforms have attracted considerable attention, many business owners are unaware that Australia already provides several concessions specifically designed to assist small businesses when selling active business assets.

Depending on eligibility, these concessions may include:

• 50% Active Asset Reduction
• Small Business Retirement Exemption
• Small Business Rollover Relief
• 15-Year Exemption (where applicable)

These concessions can substantially reduce—or in some circumstances eliminate—the capital gains tax payable on the sale of an eligible business.

However, eligibility depends on satisfying specific legislative requirements.

Generally, business owners must meet either:

• the aggregated turnover test; or
• The maximum net asset value test.

Because these rules are highly technical, professional advice is essential before making decisions regarding the sale of a business.

Why These Concessions Matter

Many Australians spend years—sometimes decades—building a business.

When the time comes to retire or sell, taxes can significantly affect how much value is ultimately retained.

For example, eligible concessions may reduce the taxable gain and, in some circumstances, allow part of the proceeds to be contributed into superannuation under the applicable lifetime limits.

The exact outcome will always depend on the business owner’s circumstances, making early planning particularly important.

Comparing the Three Business Structures

No single structure is “best.”

The most appropriate option depends on your business objectives, risk profile, family circumstances, and long-term plans.

What Should Business Owners Do Now?

Rather than reacting to headlines, business owners should focus on reviewing their current position and planning ahead.

Review Your Business Structure

Your existing structure may have suited your business when you first started.

However, as your business grows, employs staff, acquires assets, or expands into new markets, your structure should be reviewed to ensure it continues to meet your needs.

Consider Your Long-Term Goals

Whether you’re planning to grow your business, bring family members into the operation, or eventually sell, your structure should support those objectives.

Stay Informed

Tax legislation continues to evolve.

Monitoring proposed changes and understanding how they may affect your business can help avoid costly surprises.

Seek Professional Advice

Every business is different.

Professional advice can help you understand how business structures, tax planning strategies, and proposed legislative changes may affect your individual circumstances.

Common Mistakes to Avoid

Choosing a Structure Based Only on Tax

Tax is important, but liability protection, succession planning, financing, and future growth are equally important considerations.

Assuming Every Business Should Be a Company

While companies offer many advantages, they are not automatically the best choice for every business owner.

The right structure depends on your specific goals and risk profile.

Ignoring Business Risk

Higher-risk industries often require stronger asset protection than lower-risk businesses.

Choosing the wrong structure may expose personal assets unnecessarily.

Not Reviewing Your Structure

Many businesses continue operating under structures established years ago without considering whether they remain appropriate.

Regular reviews become increasingly valuable as legislation and business circumstances change.

Waiting Until You Plan to Sell

Business succession and tax planning often deliver the best outcomes when considered well before an exit event.

Frequently Asked Questions

1. Is a sole trader the cheapest business structure?

Generally, yes. Sole traders typically have the lowest establishment and compliance costs.

2. Does a company protect my personal assets?

Companies generally provide limited liability protection, although directors remain responsible for complying with their legal obligations.

3. When should I consider moving from a sole trader to a company?

Many business owners consider changing structures when their business grows, employs staff, or begins operating in higher-risk industries.

4. What is a Family Trust?

A Family Trust is a legal structure that can distribute income to beneficiaries according to trust rules and applicable tax legislation.

5. Are Family Trusts still worthwhile?

They may be, depending on your circumstances.

Recent tax discussions have increased the importance of obtaining professional advice before establishing or restructuring a trust.

6. What is the Bendel case?

The Bendel case involved the taxation treatment of trust distributions and has influenced ongoing discussions regarding trust taxation and related legislative changes.

7. Will proposed CGT changes affect business owners?

Potentially.

Business owners planning future asset sales should stay informed as legislation progresses.

8. Are Small Business CGT Concessions still available?

Eligible businesses may still access several valuable CGT concessions, subject to meeting the relevant eligibility requirements.

9. Should I change my business structure because of the Budget?

Not necessarily.

Structural decisions should be based on your individual circumstances rather than headlines alone.

10. How often should my business structure be reviewed?

Many accountants recommend reviewing your structure whenever your business experiences significant growth, changes ownership, acquires major assets, or when tax legislation changes.

Final Thoughts

Choosing between a Sole Trader, Company, or Family Trust is about much more than simply reducing tax.

The right structure should align with your commercial objectives, protect your personal assets where appropriate, support future growth, and provide flexibility as your business evolves.

Recent discussions surrounding trust taxation and Capital Gains Tax have reinforced the importance of regularly reviewing business structures rather than assuming the original setup will always remain appropriate.

For many business owners, taking the time to review their structure today can help avoid costly issues tomorrow while supporting better long-term planning and business success.

Need Help Choosing the Right Business Structure?

Whether you’re starting a new business, growing an existing one, or reviewing your current structure in light of recent tax developments, Latitude Accountants can help.

Our experienced team provides tailored advice on business structures, tax planning, asset protection, succession planning, and long-term business strategy—helping you make informed decisions with confidence.

📍 Sydney Olympic Park | Marrickville | Melbourne | Loxton
📞 1300 706 597
📧 info@latitudeaccountants.com.au

Disclaimer

This article is general information only and does not constitute tax, legal, financial, or investment advice. Information is based on publicly available material and discussion topics available at the time of writing. Tax laws and proposed legislative reforms may change. Individual circumstances vary, and professional advice should always be obtained before making financial or business decisions.