Is Your Business Structure Still Working for You?

Most business owners set up their structure early, often quickly, and often without the full picture of where the business would end up. A sole trader arrangement that made sense at the start may look very different once a business is generating consistent profit, employing staff, or holding assets.

With a number of regulatory and tax changes taking effect from 1 July 2026, now is a particularly good time to ask whether your current structure is still the right one, and if not, to make changes before the new financial year begins.

Why Structure Matters More Than Ever

The structure your business operates through affects almost everything: the tax rate you pay, your personal liability if something goes wrong, your ability to protect assets, how income can be distributed, and what happens when you eventually want to sell or transition the business.

With the ATO currently tightening its approach to trust arrangements, particularly around income splitting and the use of discretionary trusts, and with the introduction of Payday Super and changes to personal tax rates from 1 July, the interaction between your business structure and your overall financial position is worth examining carefully.

The Main Structures and When Each Makes Sense

Sole Trader

A sole trader structure is simple and inexpensive to maintain. Business income is reported on your personal tax return and taxed at your marginal rate. There are no separate company tax returns, no ASIC obligations, and minimal administrative overhead.

The drawbacks become more significant as income grows. Sole traders have no separation between personal and business assets, meaning your home, savings, and personal assets are exposed if the business faces a legal claim or cannot pay its debts. At higher income levels, the top marginal rate of 45% (plus Medicare levy) also makes the sole trader structure considerably less tax-efficient than the alternatives.

This structure typically makes most sense for low-risk, lower-income businesses where simplicity is the priority and liability exposure is minimal.

Company (Pty Ltd)

A company is a separate legal entity, which means your personal assets are generally protected from business liabilities. Eligible small companies pay a flat tax rate of 25% on business income, significantly lower than the top personal marginal rates that apply at higher income levels.

Companies also offer credibility with suppliers, clients, and lenders, and they provide a clearer pathway for bringing in investors or partners if the business grows.

The trade-off is compliance. Companies require registration with ASIC, an annual review fee, separate tax returns, and more structured record keeping. Director obligations are also more formal. For businesses with meaningful profit and genuine liability risk, however, these costs are generally small relative to the benefits.

Discretionary (Family) Trust

A discretionary trust offers the greatest flexibility for tax planning and asset protection, but also the most complexity. The trustee distributes income to beneficiaries each year, and because the trustee has discretion over how that income is allocated, it is possible to direct income to beneficiaries in lower tax brackets, meaningfully reducing the overall family tax bill.

Trusts are widely used for family businesses, investment structures, and situations where long-term asset protection and succession planning are priorities. Assets held in a trust are generally protected from the personal creditors of individual beneficiaries.

The ATO is increasing its scrutiny of trust arrangements, particularly where income distributions appear to lack genuine commercial substance. Getting professional advice on how a trust is structured and operated is essential, poorly managed trusts can attract significant penalties.

When to Consider Reviewing Your Structure

There is no single trigger that makes a review necessary, but some common indicators include:

• Your business profit has grown to a point where you are consistently paying tax at higher personal marginal rates
• You are acquiring assets, property, equipment, or intellectual property, through the business and want to protect them
• You have family members on lower incomes who could legitimately benefit from distributions
• You are planning to bring partners or investors into the business
• You are thinking about the eventual sale or transition of the business
• You have recently experienced a significant change in personal circumstances — marriage, separation, a new business partner, or an inheritance

The Cost of Getting It Wrong – or Waiting Too Long

Restructuring a business that has been operating in the wrong structure for years is rarely straightforward. Transferring assets between structures can trigger capital gains tax, stamp duty, and other costs that would not have applied if the right structure had been chosen from the outset.

This is not a reason to avoid restructuring, if the ongoing tax savings or liability benefits are significant, the one-off cost of change is often worthwhile, but it is a reason to get advice early, before those transition costs accumulate unnecessarily.

Equally, staying in the wrong structure out of inertia can cost considerably more over time than the perceived inconvenience of making a change.

If you have not reviewed your business structure recently, or if your circumstances have changed since you last did, a conversation with your Simmons Livingstone advisor is a practical next step. The right structure can make a meaningful difference to your tax position, your asset protection, and your long-term financial outcomes. Call 1800 618 800 or email admin@simmonslivingstone.com.au.