Australian companies, holding companies and trusts

Best for

Profits you want to reinvest rather than spend

What it saves

Retained profit is taxed at 25% instead of up to 47%

What it costs

ASIC fees and accounting, roughly 2,000 to 4,000 a year

Break even

Usually worth it above about 100,000 of profit you do not need to draw

How it is set up

1. Register the company and apply for an ABN and TFN.
2. Decide on salary versus dividends, and note franking credits when you pay yourself.
3. Keep company money separate from personal money.

Watch out: Taking money out as a loan instead of a dividend triggers Division 7A, which is an expensive mistake.

Best for

Families with adult members on lower tax rates and assets to protect

What it saves

Income can be distributed to whoever has the lowest marginal rate, and the 50% CGT discount flows through

What it costs

Setup 1,500 to 3,000, plus a return each year and a trustee company if used

Break even

Worth considering above about 100,000 of business or investment income

How it is set up

1. Have an accountant or lawyer establish the trust deed.
2. Make and document distribution resolutions before 30 June each year.
3. Distribute deliberately, not retrospectively.

Watch out: Distributing to family members who never receive the money is exactly what the ATO targets under section 100A.

Best for

Business owners wanting to bank profits away from trading risk

What it saves

Franked dividends can move up to the holding company without extra tax

What it costs

A second company to run and file for

Break even

Worth looking at once the business retains six figures

How it is set up

1. Get advice on rollover relief before restructuring.
2. Pay franked dividends up to the holding company.
3. Keep investments out of the trading entity.

Watch out: Restructuring an existing group can trigger CGT and stamp duty if it is done without rollover relief.

Best for

Higher rate earners with a long horizon

What it saves

Net rental losses reduce your other income now, and the 50% CGT discount applies on sale after 12 months

What it costs

You are genuinely losing money each year, so it only pays off if the property grows

Break even

Only sensible on a 37% or 45% marginal rate with real growth prospects

How it is set up

1. Get a depreciation schedule before your first return.
2. Keep interest on the investment loan strictly separate from personal borrowing.
3. Plan the sale year, because the gain lands on top of your income.

Watch out: A loss is still a loss. Negative gearing is not a saving unless the property actually appreciates.

Best for

Owners selling a business with turnover or net assets under the thresholds

What it saves

Can reduce or entirely eliminate the gain, and let you put a large amount into super

What it costs

Strict tests on active assets, turnover and net asset value

Break even

Check eligibility well before you sign anything

How it is set up

1. Test the small business entity and active asset conditions.
2. Decide between the 15 year exemption, retirement exemption and rollover.
3. Coordinate any super contribution with the CGT cap.

Watch out: Eligibility is tested at the time of sale, so restructuring the day before rarely works.