There are advantages and disadvantages of operating companies in Australia, and we will discuss both here.

The main advantages of operating a company are that:-

• The company pays a flat tax of 30%, which is much preferable than the highest individual marginal tax rate of 47% (FY2020).
• If your company has a turnover which is less than $50m, the tax rate will be 27.5% (FY2020), and will reduce to 25% by 2022.
• There is limited liability for shareholders, which means that your liability is limited to the capital invested in the company.
• Companies are also a good vehicle for investors to pool investment funds together.

The main drawbacks of operating a company are that:-

• The 50% discount capital gain for assets held for more than 12 months is not applicable to companies.
• There is extra compliance and regulatory costs associated with running a company, which has to be factored in.
• The directors of the companies have to also consider legal obligations and duties, such as refrain from insolvent trading.

So the main takeaway is that you have to weigh the pros and cons of operating a company, and if the benefits outweigh the costs.

When deciding if persons are carrying on a partnership for tax purpose, the ATO looks at the following:

• Mutual assent and intention of the parties,
• Joint ownership of business assets and bank account,
• Business records,
• Trading in joint names and/or public recognition of the partnership, and
• Extent of involvement of both parties in the conduct of the business.

In a common husband and wife partnership, one of the partner is qualified and produces the partnership income, and the other partner may be providing administration labour to the partnership. The profits from the partnership are normally, split equally between the parties.

The aforementioned structure was reviewed by the ATO in 2005, and was held to be legitimate due to the fact that both partners are exposed to liability for the debts incurred by the partnership, hence likewise should have corresponding share of the rewards.

In this respect, if one of the spouse has low or negligible income, the use of the husband and wife partnership can result in substantial tax savings.

The only drawback to the structure is that it can only be used for a tradespeople partnership, and is not recommended to be used by professionals.