Tradie business structures
When starting out as a self-employed tradie, something to consider is your business structure.
Most tradies will go with the sole-trader option to start with, but it’s definitely not the only option.
Let’s take a look at some of the more common business structure options.
Sole trader
This is the most popular option amongst tradies, especially those at the subcontractor level and with no staff.
It’s also the easiest to setup. All you need to do is register for an ABN, and if you’re turning over more than $75,000 a year, register for GST.
As a sole trader, you and your business are a single ‘entity’. This means just one tax return for you and the business.
All of the above points help you to save money on setup costs, but there is a downside to having a simple structure like this.
With being a single entity, you and your business are one and the same. If your business is sued, you are also being sued.
You’re also more limited in terms of tax planning, but for most sole traders this isn’t too much of a big deal.
| Advantages | Disadvantages |
|---|---|
| Cheap and easy to get going | Limited options for asset protection |
| Cheaper ongoing thanks to single tax return | Limited options for tax planning |
Partnership
A partnership is essentially an extension of the sole trader option when you have more than one business owner.
The partnership can be between any two people or more, and only requires the registration of an ABN, plus GST registration if turning over more than $75,000.
Quite a few tradies set up a partnership with their wife. The wife generally isn’t on the tools, but may look after all the paperwork.
The benefit of doing this is that the income generated by the business is split between you and your wife, which can be beneficial from a tax perspective.
A partnership has many of the same advantages and disadvantages of a sole trader.
An important point to keep in mind is that all partners will be fully responsible for any debts the partnership takes on.
So even if you can cover your share of the debt, if your partner cannot then you still could be chased for their share.
| Advantages | Disadvantages |
|---|---|
| Cheap and easy to get going | Limited options for asset protection |
| Cheaper ongoing thanks to no company fees | Fewer options for tax planning (compared to a company) |
Company
You know how a lot of businesses have ‘Pty Ltd’ on the end of their name? This is because they’re registered as a company.
Most tradies working on their own would consider incorporating as a company to be unnecessary, but there are some advantages.
With a company, you and your business are separate legal entities, both with your own separate Tax File Numbers (TFN).
This means that you and your business will need to submit separate tax returns. This will be more expensive, but it can give your account more options at tax time.
One of the greatest benefits of going with the company option is asset protection, as your personal assets are kept separate from the company.
When you are sued as a sole trader, there is no difference between your personal assets and your business assets.
But when your company is sued, your personal assets generally cannot be dragged in and put at risk.
| Advantages | Disadvantages |
|---|---|
| Personal assets are protected from action against the business | More expensive to setup and administer |
| More options for tax planning | More paperwork |
Trust
A trust is another kettle of fish altogether.
Trusts are generally recommended by accountants as a way of providing even greater asset protection, and the ability for more creative tax planning.
Where to get advice
Your accountant should be the first port of call when you’re considering your business structure.
They will be able to run through the taxation implications of each structure, as well as asset protection if relevant.
PS. The best form of asset protection is to ensure your business activities are properly insured!
