While all superannuation funds have a shared goal to provide retirement benefits to their members, there are many differences between SMSFs and other superannuation funds. So, if you’re thinking about setting up an SMSF, it’s worthwhile comparing SMSFs with other funds before making your decision. Here, we highlight the main differences between SMSFs and other funds.
If you’re involved in running a business, big or small, the question of the appropriate business structure is a critical one. This decision isn’t just relevant at the outset of your venture but can be revisited during its operation for potential benefits in switching from one structure to another.
There are primarily four major ways to conduct a business: as a sole trader, in partnership, through a company, or a trust — or even a combination of these structures. Each option comes with its own set of advantages and disadvantages, especially concerning taxation implications and associated benefits.
For instance, operating a business in a partnership entails joint and several liability for partnership debts, exposing you to personal liability for all partnership debts, even those incurred by the other partner. Despite this, partnerships involve fewer legal formalities compared to companies, and income from the business can be tax-efficiently split among partners.
Moreover, partnership losses can be attributed to partners, potentially reducing tax on their other income, which can be advantageous, especially in the early stages of a business when losses are common. In contrast, losses in companies and trusts are typically locked until there is income available to offset them, subject to complex rules like continuity in ownership requirements.
Family trusts offer flexibility in income splitting, while companies and unit trusts provide similar benefits in a more structured manner. Importantly, you can alter your business structure at any point during operation, often without adverse tax consequences due to concessions and roll-over provisions.
For example, transitioning a business from a sole proprietorship or partnership to a company or trust can be achieved without adverse tax implications, provided certain eligibility criteria are met, such as maintaining beneficial ownership and control.
These roll-over provisions have expanded to enable businesses to shift into discretionary trust structures while maintaining continuity of beneficial ownership. Capital gains triggered by restructuring small businesses can be mitigated using CGT small business concessions, potentially reducing assessable gains and facilitating gain rollover into new business assets.
Conclusion
If you’re considering a change in how your small business operates, especially from a tax perspective, reach out to our experienced team to explore different options and weigh the advantages and disadvantages of each structure. Similarly, if you’re embarking on your entrepreneurial journey, consult with us to determine the best-suited structure for your new business.
For personalised advice on selecting the optimal business structure for your enterprise, schedule a consultation with Regency Partners today.
