Companies and trusts are complex business structures.
If you are running your business through a trust, you will have a trustee who has legal responsibility for the operation of the trust. The trustee can be an individual or a company. Profits from the trust go to the beneficiaries. Beneficiaries can also be employees of the business.
Trusts must generally distribute all available profits or income to beneficiaries. Any income that remains within the trust and is not distributed may be taxed in the hands of the trustee at the highest marginal tax rate. The trustee must distribute trust income in accordance with the trust deed. The trust deed will generally list or outline who the beneficiaries are, including how income or profits should be split between the beneficiaries. Any trust distributions should be for the benefit of the intended beneficiary and not for the benefit of anyone else, including other beneficiaries and/or family members.
If you are running your business through a company you will have directors and shareholders. A company is run by its directors and owned by its shareholders. A director can be an employee of the company, and they can also be a shareholder. The information in this course will apply to those of you who are directors or shareholders but it will also apply to those people or entities that are classified as ‘associates’ of shareholders.
Speaking in very general terms the more common associates are relatives, partner, spouse, or another entity controlled by the shareholder such as an associated company or trust. You can find a more complete list of the different types of associates on ato.gov.au.
The ATO often sees small businesses make mistakes in their tax obligations and reporting purely because of their business structures being too complex or unsuitable for their business situations. It’s important to understand what is involved in paying yourself, or using business money and assets for personal use, when deciding between complex or less complex business structures. If you are thinking of changing your current business structure to either expand or downsize your business, it’s recommended that you discuss your considerations with your professional advisers. You can also write to the ATO to determine whether your change in business structure will have a tax implication.
