BDO Tax Partners David Brian (pictured) and Alan Scott. Photo / Supplied
Keeping up with tax obligations doesn't need to be a bugbear for small businesses but you need to take the right approach from the outset, say the experts. Ensure you choose the best structure, as it is not always easy to change once you're up and running.
What can be
done at start-up stage?
Tax is levied on transactions so it is imperative that the tax consequences are addressed before concrete steps are taken. In the case of a new business, choosing your structure is key. If limited liability is required, the usual choice is a company. A small business (five or fewer owners) may want to use a look-through company (LTC) as it has essentially the same tax characteristics of a partnership but with limited liability.
Unlike a standard company, an LTC allows non-taxable gains to be passed out tax-free to the shareholders, who also can use the company's losses against their own income, and the income is taxed directly to the shareholders. But a standard company may be better if the business is profitable as its income is taxed at 28 per cent, whereas LTC income may be taxed at 33 per cent to the shareholders.
Major changes can have unusual tax consequences. For example, bringing on a new shareholder will alter shareholding percentages, which can result in imputation credits and/or tax losses being forfeited. Addressing those issues before the change takes place can avoid unnecessary grief down the track.
