Which business entity is best for tax

Getting a new business venture off the ground is an equally exciting and stressful time. You're enthusiastic about getting your new product or service out into the market, but you face quite an administrative process to get it off the ground legally.

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A decision that often stumps many small business owners is whether to operate as a sole proprietor or as private company, a PTY Ltd. We receive many questions about this from entrepreneurs wanting to know the tax implications (despite it not being the determining factor in deciding on a specific business structure) of each route.

The sole proprietor route is less administrative-intensive to start, but you do take on much more personal risk than that of a company director. So at lower levels of taxable income, its far more tax efficient to operate as a sole proprietor and enjoy the benefits of sliding tax tables and rebates available to individuals. At higher income brackets and as you start to earn more, its likely that company registration would be better for you.

Keep in mind that this is just a general rule of thumb. If you want a proper look at what would work best for you and what would give you the most tax benefits you can get hold of a tax aid who will perform detailed calculations for both scenarios (sole proprietor vs. company) to determine which is truly more tax efficient.

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