Should you upgrade from a sole trader?

Should you upgrade from a sole trader?

Here at GMD Chartered Accounting Services, we are often asked, "should I upgrade from a sole trader?" The question whether or not you should upgrade from a sole trader is a complex one. We have outlined below some basics surrounding upgrading your sold trader status.

Upgrading from a sole trader is an important question to consider as creating a company, unit trust or discretionary trust to run your business can have many tax and commercial benefits. You may be able to income split and retain earnings at the 30% corporate tax rate, saving you income tax every time 30th of June rolls around again.

 Earning over $80,000? 

If you are earning a taxable income of over $80,000 operating a business as a sole trader, you should consider whether it is commercially viable to upgrade your business structure. Structuring your business in the most commercially viable way can assist in achieving business goals. 

 It is important to access the increased costs of running the structure against the tax commercial benefits you could receive. In some situations, the costs of running the structure will outweigh the positive benefits on tax and commercial viability do not warrant upgrading your business structure. It is a question which can be revisited many times, as businesses in the growth phase are constantly changing and evolving with the flux of business.

 If you can retain earnings at the 30% corporate tax rate, this will give you more working capital in your business. This working capital in your business allows you to leverage off this increased working capital and grow your business faster than you otherwise would. The combination of capital and opportunity is a requirement for every successful business, so increasing your capital through the efficient use of the corporate tax rate will inevitably help the success of your business. 

 Contact GMD Accounting today to discuss the possibility of upgrading your operation from a sole trader to a business structure more suitable to the stage of your business and its projected growth. We have worked with many successful sole traders to upgrade their business structure when applicable, to achieve a more commercially viable business structure. 

Tags: Sole Trader, Incorporation, Business Structure

Related Articles

Back to Articles