Why Most Business Owners Never Review Their Structure
Two business owners.
Same industry.
Same profit.
But one pays $10K–$15K more in tax every year.
Not because of a mistake — but because of a decision they made when they first set up… and never looked at again. 👉 Their business structure.
When you start out, Sole Trader usually makes sense:
- Simple setup
- Low cost
- Easy compliance
But as your business grows:
- Profits rise
- Expenses and risk increase
- The structure never evolves
That’s where money quietly leaks away — year after year.
The Three Most Common Business Structures in Australia
1. Sole Trader
- You = the business
- All profit taxed at personal marginal rates (up to 47% including Medicare levy)
- Simple, cheap to run
- Expensive at higher income levels
2. Company
- Separate legal entity
- Flat 25% small business tax rate (for turnover under $50 million)
- Profits can stay in the business for reinvestment
- Great for growth
- Accessing funds for personal use is restricted under Division 7A ato.gov.au
3. Trust
- Profit distributed to beneficiaries (often family members)
- Flexibility to spread income across lower‑tax recipients
- Highly strategic for family or multi‑owner setups
- Must follow distribution rules precisely; ATO monitors misuse closely
How Different Structures Change Your Tax Outcome
$150,000 business profit — three structures compared:
Structure | Approx. Tax (FY 2026 rates) | Comment |
Sole Trader | ~$43,500 | Taxed at personal marginal rates |
Company (25%) | $37,500 | Flat rate, but profit must remain in business or be paid as dividends |
Trust (split to family) | ~$28,000 | Assuming income split across two adults |
That’s a difference of:
- 💰 ~$6,000 per year between sole trader and company
- 💰 $15,000+ per year between sole trader and trust
Over five years, that’s $30K – $75K — just from structure choice.
(Figures based on 2025–26 tax rates and current small‑business thresholds mysupertax.com.au successionadvisory.com.au).
The Most Common Business Structure Traps
The “still a sole trader” trap
- Income over $100K
- Paying the top marginal rate
- Still trading under an old setup
- Every extra dollar is taxed higher than it needs to be
The single‑income couple
- One partner earns most income
- The other earns little or none
- Missed opportunity to split income legally via a trust
The re-investor
- Leaving profits in the business to grow
- Still taxed personally on all earnings
- Paying tax on money you didn’t even take out
Why the Lowest Tax Rate Isn’t Always the Best Structure
Each structure has trade‑offs.
Companies
- Additional compliance costs
- Dividends taxed again in shareholders’ hands (franking credits offset partially)
- Division 7A rules restrict private access to company funds
Trusts
- Must distribute profits annually — can’t retain income easily
- Require clear records and trustee resolutions before 30 June
- Subject to anti‑avoidance scrutiny if distributions look artificial
The right structure depends on your business model, size, family situation, and goals — not just the tax rate.
Why EOFY Is the Best Time to Review Your Structure
You’re already finalising accounts and looking at profit.
It’s the perfect time to ask the real question:
“Is my current structure still the best fit for where my business is now?”
You can model options, plan ahead, and if a change makes sense, implement from 1 July 2026 for a clean start.
Quick Business Structure Self-Check
Ask yourself:
- Am I earning over $100K and still a sole trader?
- Could income be shared more evenly in my household or business partners?
- Do I leave money in the business rather than taking it as personal income?
- When was the last time I reviewed my structure?
If you can’t answer confidently — that’s your signal.
What Happens If You Never Review Your Structure
Nothing dramatic… and that’s the problem.
You just keep paying:
- Slightly more tax
- Every single year
- Without noticing how much it adds up
Until one day you look back and realise how much could have stayed in your business, not the ATO’s hands.
The Most Important Question to Ask Your Accountant
At your next accountant meeting, don’t start with “How much tax do I owe?”
Start with:
“Is my structure still right for how my business operates today?”
That one question could change your next five years.
Need a Business Structure Review Before EOFY?
If you want a clear answer before the new financial year,
book a structure review.
We’ll show you:
- What your current setup is costing you
- What alternatives could look like
- What to implement from 1 July 2026 to start fresh
FAQs
Many sole traders start reviewing structure once profits increase, risk exposure grows, or income becomes more consistent. Higher income levels can make personal marginal tax rates significantly more expensive over time.
A company is a separate legal entity taxed at a flat company tax rate, while a trust distributes profits to beneficiaries. Each structure has different tax, compliance, asset protection, and cash flow implications.
Not always. The right structure depends on profit levels, business goals, family circumstances, reinvestment plans, and how income is used. A lower tax rate alone does not always create a better long-term outcome.
EOFY is often the best time to review structure because financial performance is already being assessed. It also allows businesses to plan and potentially implement changes from the start of the new financial year.
Yes. Many businesses quietly overpay tax for years because their structure no longer matches how the business operates. Small annual differences can compound significantly over time.
At The Pen Accounting, we specialise in helping creative businesses like yours achieve financial success. From bookkeeping to tax advisory and business strategy, our services are tailored to the unique needs of the creative sector in Australia. If you’re ready to take control of your financial records, contact us today and discover how we can help your business grow.
Disclaimer: This is general information only and is not advice of any sort. No warranty or representation is provided by The Pen Accounting as to the accuracy, currency or completeness of the information contained in this blog. Readers of this blog should not act or refrain from acting in reliance upon any information contained herein and must always obtain appropriate taxation and / or other advice as may be appropriate having regard to their particular circumstances.
