CHAPTER 1

Selecting the Optimal Business Structure

Choosing the proper structure for your allied healthcare practice is one of the most important decisions you will make as a business owner—The structure you choose determines the limits of what is possible. Here’s what to consider:

Tax Efficiency: Evaluate how each structure affects your tax obligations and opportunities for strategic tax planning. Mistakes here can lead to unnecessary taxes or missed opportunities for capital gains savings.

Asset Protection: Consider the level of protection each structure provides for your personal and business assets. This isn’t just about shielding your home; as your business grows, you’ll want to ensure its value is equally safeguarded.

Flexibility for Growth: Understand how each structure supports or limits your ability to expand and raise capital. For instance, some structures make bringing in new equity partners easier as your business evolves.

Here are four fundamental business structures:

Sole Trader

Pros:

  • It is inexpensive and straightforward to establish and operate.
  • Complete control over business decisions.
  • Lower compliance and administrative costs.
  • Direct access to all profits.
  • Eligibility for capital gains discounts if business assets are held for over 12 months.

Cons:

  • Unlimited personal liability for debts.
  • Challenges in raising capital.
  • Limited tax planning opportunities.
  • Business growth may be constrained by reliance on a single individual.

Partnership

Pros:

  • Easy and relatively low-cost to set up.
  • Shared responsibility, pooling skills and resources.
  • Flexible profit distribution.
  • Greater access to capital compared to a sole trader.
  • Capital gains discount available if business assets are held for over 12 months.

Cons:

  • Joint and several liability for debts.
  • Potential conflicts among partners.
  • Profits must be shared.
  • Fewer tax planning opportunities than more complex structures.

Trust

Pros:

  • Strong asset protection.
  • Flexible profit distribution for tax planning.
  • Business continuity unaffected by changes in trustees.
  • Potential tax benefits through income splitting.
  • Access to capital gains discounts for assets held over 12 months.

Cons:

  • Trustees bear significant legal responsibilities.
  • Higher compliance and administrative costs.
  • Limited ability to raise capital.

Company

Pros:

  • Limited liability for shareholders, safeguarding personal assets.
  • Easier capital raising through share issuance.
  • Perpetual succession as a separate legal entity.
  • Greater flexibility in tax planning.

Cons:

  • More complex and costly to establish and maintain.
  • Higher compliance and regulatory obligations.
  • Profits may face double taxation (company tax and personal tax on dividends).
  • Difficulties in distributing untaxed capital gains to shareholders efficiently.
While these structures offer a starting point, real benefits arise when you combine them. Here are some popular combinations:

Discretionary Trusts with a Corporate Trustee

  • Ideal for a family business with no plans to add new partners;
  • This structure provides excellent flexibility for distributing profits within the family group, helping to minimise taxes;
  • Access to a broader range of capital gains concessions than a company if the business is sold;
  • As the business grows, a ‘bucket company’ can be added for greater flexibility;
    It offers strong asset protection, with the corporate trustee shielding both personal and business assets;
  • However, adding a new partner or investor later on would require a restructure.

Company with Discretionary Trust with a Corporate Trustee Shareholder

  • Great for practices that may want to bring in new partners in the future;
  • This structure supports tax planning by allowing excess profits to be taxed at the company rate;
  • However, companies are often less efficient when dealing with capital gains tax;
  • Money can be drawn from the business via wages, dividends, or loans—each with its own set of rules;
  • It also offers solid asset protection;
  • Supports growth through flexible shareholding arrangements, making it easy to add new partners.

Unit Trusts with Discretionary Trust Unit Holders

  • This structure is ideal for practices considering new partners;
  • It offers good tax outcomes, with profits flowing from the unit trust to the discretionary trusts holding the units;
  • However, there is a sneaky capital gains event called E4 which you need to monitor each year to avoid adverse outcomes;
  • Good access to capital gains tax concessions;
  • Ownership is clear, with fixed percentages similar to company shares, and partners can hold units in their preferred structures, such as discretionary trusts;