Structures

Structures

The Entity Spectrum

 Sole TraderPartnershipCompanyUnit TrustDiscretionary TrustSMSF 
Establishment DocumentsNoPartnership AgreementConstitution/Shareholders agreementTrust Deed/Unit holders agreementTrust DeedTrust Deed
Governing LawNo specific ActPartnership Act (State)Corporations ActTrustee Act (State)Trustee Act (State)SIS Act (Rigerous Rules)
Regulatory BodyN/AN/AASICN/AN/AATO
Seperate Legal EntityNoNoYesYesYesYes
Perpetual ExistanceTerminates on DeathTerminates - change in partnerYesMust vest within a periodMust vest within a periodYes/depends
Persons/SuitabilitySelfFamily/3rd Parties3rd PartiesFamily/3rd PartiesFamilyFamily
Limited LiabilityNoNo -joint & several liabilityYesCan be - if trustee a CoCan be - if trustee a CoCan be - if trustee a Co
Level of ComplexitySimpleMedium to HighComplexComplexComplexVery Complex
Cost to establishLowLow/MediumMediumLow/High depending on partiesLow/High depending on partiesHigh
Cost to operateLowMediumMedium/HighMedium/HighMedium/HighHigh
Asset ProtectionNoneNone (Also Liable for debts of other partners, even if had no knowledge of debt, and was not responsible for it)HighHighHighHigh
Tax RateIndividual Marginal Tax RatePartners Tax Rate30% or 27.5% for SBE47% Or beneficiaries tax rate47% Or beneficiaries tax rate15%
Top Tax Rate (2019)47%47%30% or 27.5%47%47%15%
Flexibility in DistributionNoneNoneNoneNoneHigh - Trustee DecidesHigh - Trustee Decides
Distribution of LossesIndividual usesPartners can useTrapped in CoTrapped in TrustTrapped in TrustReduces Beneficiary Account
Carry Forward of LossesN/AN/AContintuinuity of ownership and same business test appliesCompliance with Trust Loss rulesCompliance with Trust Loss rulesN/A
Transfer of LossesNoGenerally No, unless within a tax consolidated groupYes, if within a tax consolidated groupGenerally No, unless within a tax consolidated groupGenerally No, unless within a tax consolidated groupNo
Non Commercial Loss RulesYesYesNoNoNoNo
Income SplittingNoSome flexibility with the use of partner salries (refer TR2005/7)Dividends, but Note PSI rules and IT 2503Distributions, but Note PSI rules and IT 2504Yes, Distribution determined by trustee, but Note PSI rules and IT 2505Yes, Determined by Trustee
Streaming of incomeNoNoNoYes franked dividends and capital GainYes franked dividends and capital GainNo
Loans to PrincipalsN/AYesDivision 7A appliesYes/Div 7A if UPE to Corporate TrusteeYes/Div 7A if UPE to Corporate TrusteeNo, Beware breaches
Interest Deduction on Return of CapitalN/AYes - TR 95/25Yes - TR 95/25Yes - TR 2005/12Yes - TR 2005/12No
Payment of tax free capivtal gainsN/AN/AMay be a Dividend - refer S44/S47(1A) & S104-135CGT Event E4 may apply S104-70No CGT Event E4 - TD 2003/28N/A
Change in majority underlying ownership (Subdivision 149-B) - Pre CGT assets takes on MV at 149 dateN/AN/ACan ApplyCan ApplyShould not apply unless a new family is added refer IT 2340N/A
CGT Event K6 (S104-230) PreCGT Shares/UnitsN/AN/ACan ApplyCan ApplyNoNo
S100A ITAA 1936 Reimbursement agreements- income is assessed to TrusteeN/AN/AN/ACan ApplyCan ApplyN/A
Excessive Payment to Principle or relativeS26-35 ITAA 1997S26-35 ITAA 1997 and S65 ITAA 1936S109 ITAA 1936N/AN/AN/A
CGT General Discount - Asset help >12 months50%50%No50%50%33.30%
Availability of Small Business CGT ConcessionsYesYesYesYesYesNo
Significant Individual TestN/AN/A (but Yes if trust and company partners)AppliesAppliesAppliesN/A
Can principal be employedNoNoYesYesYesNo
Salary PackagingNoNoYesYesYesNo
Who registers for GSTIndividualPartnershipCompanyTrustee for TrustTrustee for TrustTrustee for Trust
Tax AssessedIndividualPartnersCompanyBeneficiary or TrusteeBeneficiary or TrusteeSMSF
Borrowing to pay tax - interest deductibleYes - ID2006/269No - TD 2000/24YesYes, if incurred by trustee & has sufficient nexus with the businessYes, if incurred by trustee & has sufficient nexus with the businessNo
Do Principles have a fixed interestYesDepends on P'ship termsYesYesNoNo
Access to Farm Management Deposits (FDA)YesYesNoIndividual Beneficiary of Trust IncomeIndividual Beneficiary of Trust IncomeNo
Primary Producers Income AveragingYesYesNoIndividual Beneficiary of Trust IncomeIndividual Beneficiary of Trust IncomeNo
R & D Tax ConcessionsNoNoYesNoNoNo
Franking Credit benefitsYesYesNo (Adds to FC Account)Individual Beneficiary of Trust Income (fixed entitlement) - if no fixed entitlement, a FTE is neededIndividual Beneficiary of Trust Income (Note 45 Day rule and FTE - Family Trust Election needed)Yes
Negative GearingYesYesNo (loss trapped)No (loss trapped)No (loss trapped)Yes but limited benefit
Capital Gain StreamingNoNoNoFixedYesNo
Business UseCan do - but risk attachedCan do - but risk attachedYesYesYes - but do not include passive investments in trustGenerally No - High Risk of Breach
InvestmentCan do - but risk attachedCan do - but risk attachedYes - but no CGT exemptionsYes - but beware CGT event E4Yes - SafestYes - Safest - but may be restricted in investment choice
Trade Creditor RecourseFull personalFull PartnerAgainst Company - No claim against shareholdersAgainst Trustee and then assets of trust (via trustees right of indemnity)Against Trustee and then assets of trust (via trustees right of indemnity) - No claim against beneficiariesAgainst Trustee and then assets of trust (via trustees right of indemnity)
Access to Underlying assets by associated partiesYesYesYesYesYesNo - locked in untill met condition of release