Company structure
A separate legal entity that owns the business, taxed at a flat company rate with limited liability for owners.
A company is a distinct legal person. It owns assets, incurs debts and lodges its own tax return, and its shareholders are generally not personally liable for its obligations.
Company profits are taxed at a flat rate — 25% for base rate entities and 30% otherwise — rather than at individual marginal rates. Profits distributed as dividends carry franking credits for the tax already paid.
The benefits come with cost and obligation. Annual ASIC fees, separate accounts and tax returns, and directors' duties all apply, and directors can be held personally liable for unpaid tax and insolvent trading.
Where the rate advantage appears
Profit retained in a company is taxed at 25% rather than a 47% personal rate. The saving is a deferral: distributing it later as dividends brings the shareholder's rate back into play.
The bit people get wrong
Money in a company is not your money. Taking funds out informally creates a loan that must be documented and repaid under Division 7A, or it is treated as an unfranked dividend and taxed.
Common questions
When is a company worth it?
Generally when profits consistently exceed personal needs, when liability risk is meaningful, or when you need to bring in investors or partners.
Does a company protect my house?
It provides real separation, but directors can still be personally liable for unpaid super and PAYG, insolvent trading, and any debts they personally guarantee.
Do companies get the CGT discount?
No. The 50% CGT discount is unavailable to companies, which is a significant drawback for holding appreciating assets.