Sole Trader vs. Limited Company Australia: Pros and Cons
ฝัง
- เผยแพร่เมื่อ 8 ก.ค. 2024
- Should you set up your business as a Sole Trader or Pty Ltd Company?
Here are some things to consider when deciding on what business structure is most suitable for your situation.
In this video, I cover:
0:00 - Intro
0:11 - Sole Trader summary & Set-Up Costs
0:45 - Sole Trader Tax Rates
1:09 - Pty Ltd Company Summary and Set-Up Costs
1:32 - Benefits of a Company
2:44 - Company Tax Rates
3:22 - Final Thoughts
Both situations have pros and cons but it's important for you to think about the long term aspirations of your business and what direction you would like to take it. More often than not, companies provide far greater protection and tax benefits but also end up being more expensive to set up.
Blog article - boxas.com.au/small-business-h...
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Thank you for watching this video. I post weekly videos on this channel to provide the latest and most frequently asked business questions. Please take a second to say hi in the comments below. Also, if you enjoy my comments and find it valuable, subscribe to the channel, like and share it with anyone who you think might find my channel useful!
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Davie has over 10 years experience in advising businesses in management accounting and taxation issues. He heads up a passionate team at Box Advisory Group who are dedicated to offering proactive and outstanding service to our clients.
Davie’s extensive experience in providing tax and consulting advice and astute business knowledge has paved the way for success for many businesses.
He is a member of the Chartered Accountants Australian and New Zealand, a member of the Australian Tax Practitioners Board and holds a Bachelor of Commerce degree from the University of New South Wales.
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Website: boxas.com.au/
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DISCLAIMER: Please note that every effort has been made to ensure that the information provided in this video is accurate. You should note however, that the information is intended as a guide only, providing an overview of general information available to contractors and small businesses. This guide is not intended to be an exhaustive source of information and should not be seen to constitute legal or tax advice. You should, where necessary, seek your own advice for any legal or tax issues raised in your business affairs.
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Very helpful, thank you 🙂
No problem, glad you found it helpful.
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Brother, I appreciate your efforts. I research this stuff from time to time but get discouraged. It's just so nice to have a human being speak clearly on how this stuff works. I'm very serious about starting my business this year, so I NEED this information. Good man.
No problem mate. Glad its helping. Focus on providing value and the money will come. You got this!
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This is the exact information I was looking for - very helpful thanks!
Glad it’s helped!
Thanks Davie, I'm on the business register page now, big help!
No problem!
One of the best videos I've watched, so straightforward. Thank you. We are based in the UK 🙂
No problem, my video was tailored to Aussie laws so definitely do some more research into this for UK laws! Thanks for watching mate
This video will help my clients enormously, thank you, Davie!
You can trade with Mr timothy strategies,his the best ever known on bit coin forex trade crypto,coinbase and others
timothygart @ gmail com
Thank you! Really simple and easy to understand.
Glad it was helpful!
Great video and explanation. Thank you
Very formative, Thank you.
Glad it was helpful!
Good content mate. Thanks
Thank you, really appreciate it
Glad it helped, Jacob!
Thanks mate appreciated.
No problem 👍
This was super helpful. Cheers.
no problem!
Thanks clear and helpful
No worries Moji, glad it was helpful.
So clear and well explained, thanks you!
No problem
Thanks for watching
You can trade with Mr timothy strategies,his the best ever known on bit coin forex trade crypto,coinbase and others
timothygart @ gmail com
Am starting a business an I asked today a lady who’s running another business she gave me exactly the same advice to opt for a company thank you so much
Nice to hear :)
Good luck and enjoy the journey
Thanks mate
Good simple advice
Cheers !
Thank you for the helpful video
thanks
helped a lot thanks
Glad it helped
thank you
You're welcome
Thank you
You're welcome!
Great video. Subscribed!
You can trade with Mr timothy strategies,his the best ever known on bit coin forex trade crypto,coinbase and others
timothygart @ gmail com
Thanks, very helpful info 👍
Thanks for watching! Glad you found it helpful :)
You can trade with Mr timothy strategies,his the best ever known on bit coin forex trade crypto,coinbase and others
timothygart @ gmail com
Thanks, that was helpful
Glad you found this video helpful. Thanks for watching!
You can trade with Mr timothy strategies,his the best ever known on bit coin forex trade crypto,coinbase and others
timothygart @ gmail com
Hey Davie, great video thanks for simplifying the differences. Just wanted to clarify when mention 180k is the sign to move from sole trader to company - is that purely total ABN revenue only or total personal income (including salary and other income you might have)?
Yooo Davie, this is really informative and easy to digest. I know you posted this video awhile back, but I was wondering what if I also want to buy a house? Should I buy it through the company or my own name? What if I live in it?
Great imfo
Thank u
Thank you for watching!
You can trade with Mr timothy strategies,his the best ever known on bit coin forex trade crypto,coinbase and others
timothygart @ gmail com
Is this the same concept for pass through entities, like holding corporations for investments?
Please do best structure for individual high income earner >$180k annually that planning to side hustle into investing properties. Is it a trust with corporate as trustee or just a company to run the the business better? Thanks
so what happens if we want both a sole trader for a smaller busines and a company for larger different bisness or do u just have it a company and do both
Which one is better structure for a small online clothing business… 🙏🏻
Thank Davie! Using your example of $200K income, if you have a company, get taxed at 26% and are the only owner of the business. When you distribute all the profit, wouldn't you ultimately pay the 45% because you'd need to declare the $200K as dividends in your individual return?
Yes, thats if you distribute the profit.
The director determines what dividend to pay each year. If they dont pay the dividend out then the tax on the profit is only 26%.
And to answer your next question, you dont have to always invest in your own name so there isnt always a need to pay it all out as a dividend and pay 45%. Why not use the money to invest in the business/company or grow you business with it. If you are going to use the money personally because you need it then yes you will ultimately pay the 45%.
@@DavieMach how do you recommend a director (who is also working for the company) pays themself? If they take a wage then that gets taxed at the individual tax rate, so does dividends. What other option is there?
@@kyzzlee Hard to say unless we review the situation. Depends on the profit of the business and income level of the director personally (if they have other income). Is the director a sole shareholder?
Its quite difficult to say without knowing the full picture. Maybe good for you to organise a free consultation or speak to your accountant.
Surely there are also different tax deduction benefits to a company structure vs sole trader, right? It would be nice to see a video on that.
Further, as a sole trader you don't pay payroll tax (though are taxed at income tax anyway for the whole business), which I imagine is more than the company 27.5% + payroll tax & super?
Yes we go through that in the when to setup a company structure video.
What is the T7 field in the bas form? It's provided from the ato. Is that like a company tax installment so that you can help meet paying company tax at the end of financial year?
It’s a prepayment of income tax. The ato received your previous years tax return and there was a tax payable so now they want you to prepay taxes for the current year. It will give you a credit so you don’t pay so much when you lodge your next tax return.
@@DavieMach What happens if you are PSI? The ATO is taking money i'd have to spend anyway. I assume from the previous years if I was PSI in previous years, the T7 field would be zero.
But you can’t use company money for your living right? You need to pay yourself salary then it will be taxed anyways??
Hey mate, what options does a sole trader have to reduce personal assets risk? Does personal and/or professional indemnity insurance cover genuine mistakes, damage etc that are not wilful or illegal?
Best to chat to an insurance broker but in general I believe yes.
How about if you are a non-resident and moving overseas and you have an ongoing company that does digital works for Australian businesses such as websites etc. here in Australia? Should I pay more tax?
Hello, that's a good question but hard to answer without the full picture. Best you book a consultation with the BOXAS team or speak to your accountant.
Is it easy to transfer a Sole Trader ABN to a Company ABN? I will not be earning the amount required to pay personal tax anywhere. I am looking at self-publishing books through online platforms. Some are asking for an ABN even though the profit generated is relatively low initially and may stay that way for some time. I was thinking of starting as a Sole Trader and transferring down the track to a company if I undertake another more successful venture.
ABNs are unique numbers that cannot be transfered. So you will have a separate ABN for a Soletrader and Company.
I am an IT professional. Can we get save more tax if we move from PAYG to ABN? Many people are telling that it is risky, is it true?
We should have a video on this coming out in a month. stay tuned!
Hey! It looks like this video is broken and wont play
Hey Chris, should be up and running again now!
Can we sell as individuals on amazon without registering any company nd how to pay gst and tax to Australia govt?
Sorry you will have to check with Amazon with that question.
You need to setup GST and Income tax registrations with ato and lodge BAS. Best to speak to an accountant to show you the way.
Can't seem to play this one
Thanks should be working now!
What happens if you have a full the job but want to start a side hustle.
If you start a company and pay yourself a wage from the company do both the company and yourself have to pay a seperate tax each?
Hey,
you dont get double tax. The tax paid by the company is passed over to the employee/you. The wage is a tax deduction for the company. The company pays the wage to you but withholds some of the wages for income tax. This gets paid to the ATO. Then when you lodge your personal tax return you would have your wages as your income but tax credit paid by your company.
Would you say that it makes more sense to start out as a Sole Trader and convert to a company once you reach a certain income?
Yes that’s correct.
It does depend but most of the time yes
@@DavieMach Hi Davie great video, Ryan asked the question and I think the answer given is what I was looking for.
Could you confirm if that would be similiar as a stocktrader/investor?
I was looking at investing a substantial amount, and thought it's best to go straight into company structure, however makes sense to do that when the income is coming through first at around 180k plus, would that be right??
Thank you in advance for any reply.
@@janenes2782 when share trading it gets messy if you have to restructure from soletrader to company as you may have to sell all your shares in your name and pay the tax then move to a company. Could be a better idea to move straight to company from the start if you are investing a substantial amount. Best to have a chat to an accountant and get detailed advice.
I wouldn’t get advice on TH-cam if you are investing a significant amount
@@DavieMach Thank you Davie, appreciate your reply. Will do, as I wanted to combine investment properties into the mix also, have been watching and learning from many of your videos yesterday, theyre so helpful and I've learnt so much, thank you for the awesome content you share, have a fabulous day!
@@janenes2782 that’s so great to hear :)
Thank you for watching
If you start as a sole trader can you convert your business in a company later on? Or do you have to create a completely new business with ABN and everything?
You have to create a new entity with new abn, bank account and etc
@@DavieMach Thanks. So pretty much if you're 3 years in a sole trader business trader with active staff etc... you have to create a whole new entity/business?
@@techsavytronicstechsavytro528 Yes thats correct, it has to be a separate entity.
Thats the reason why its useful. Its separated from your personal name.
Hi there . I am a New Zealand citizen planning to move to Australia. Can I be a Sole Trader or open a company by my own or do I need to do it with an Australian? For both way? Thanks alot
Yes as a New Zealand Citizen you should be fine to setup a soletrader or a company.
For a company you must be based in Australia
@@DavieMach thank you so much . I am very appreciate that.
🙏🙏🙏🙏🙏
Thanks for watching Kat!
I don't quite understand how you claim that 27.5% tax rate if you pay taxes at you personal income tax levels when you pay yourself from the company as company income is not your income.
Your scenario is if you take all the profits of the business and spend it personally. But when you run businesses you would like to reinvest your profits so then you would want the cheapest tax rate so why not pay yourself a modest wage then keep the profits in the company at 27.5 (25% currently) to grow your business more?
@@DavieMach So you roll over to the next financial year to reduce the total tax percent and then pay the employee the next following financial year?. I can't anyway as I'm on PSI.
now is 25% for a small company