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  • Changing business structures

    Many small businesses change their business structure from a sole trader to more complex company or trust structures, especially when the environment changes. This can lead to errors.

    Some of the common errors we see include:

    • reporting income for the wrong entity
    • claiming expenses incurred by another entity as business expenses
    • personal use of business bank accounts.

    Remind your small business clients who have incorporated that:

    • the company is a separate legal entity from them as a shareholder or director
    • money that the company earns, belongs to the company
    • the company owns its assets, and they cannot treat them as their own
    • if a director or shareholder of a company uses company assets for their personal use, it must be properly treated as a benefit to the director or shareholder. The Division 7A or fringe benefits tax (FBT) provisions could apply if not treated correctly. You can use our Using your company’s money or assets guide (PDF 629KB)This link will download a file to help explain this to your clients.

    If your clients move to a trust structure, remind them of the trustee's responsibilities, including:

    • holding the trust property (including assets, investments and income) for the benefit of the beneficiaries
    • managing the trust's tax affairs
    • paying some tax liabilities.

    You should also consider the small business restructure rollover when you advise your clients about restructuring.

    See also:

    Last modified: 24 Aug 2020QC 63462