Operating Companies

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.

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