ENTITY SET UP
CASE STUDY
SOLE TRADER
Three years ago, when Michael was young, kind of single and life was fairly uncomplicated….
Michael is a Physiotherapist
Michael established his own physiotherapy clinic. Uncertain about how a new clinic would go and without seeking professional advice, Michael registered an ABN under his own name, ie sole trader, rented a room in a local medical related centre and started his new business enterprise.
Scaling up
Three years later Michael’s physiotherapy clinic is growing.
During a consultation with his accountant it was suggested the practice be restructured into either a company or trust structure.
Michael chose a trust structure with a corporate trustee for the following reasons:
- Michael is now engaged to be married. His fiancé is working but as they are planning to have a family she was planning to cease work.
- A trust structure will reduce exposure of personal current and future assets – eg family home.
- A trust structure will provide greater flexibility in tax planning – eg splitting income with family members.
A trust structure also provides greater scope for further tax planning by interposing other entities, eg company or trust, as a beneficiary.
Problems
- Replacing the sole trader structure means new ATO registrations for TFN, ABN, GST, PAYGW.
- All existing business related contracts associated with the sole trader need to be reviewed and new contracts arranged – eg commercial lease, insurance policies etc.
- All existing financial arrangements need to be reviewed – eg. new bank accounts, new merchant facilities with banks and medical funds, loans etc.
- Changes to existing payroll – eg new payroll system, new SG arrangements, new work cover policy.
Pain and costs
Although Michael now has a business structure that will work for him now and into the future, the change over process has some pain and costs attached.