Business Structures

In increasing order of cost and complexity:

Sole Trader

The Sole Trader structure is the most appropriate for most arts businesses. Legally the only thing you might have to do, if intending to operate under a name other than your own, is to register a Business Name. Don’t forget, you’

ll also need an ABN, and may need to register for GST..


A partnership exists where two or more people come together to conduct a business, with profits (and losses) shared (usually, but not necessarily) equally.
Partnerships should not be set up as an income splitting device if the commercial or other circumstances cannot justify it. For example, a visual artist could not form a partnership (for tax purposes) with a musician. In a partnership, each partner has to be equally involved in the activity/ies giving rise to income.

The partnership does not pay income tax, but it does have to lodge an income tax return which shows where the taxable income has been distributed. It will have its own ABN and Tax File Number.

Partnerships are particularly useful for bands, dance and theatre companies, and other groupings of individuals carrying on a common activity. Note that if the group wants to access grant funds, then it will either need to be incorporated as a not-for-profit, or have grants auspiced by a not-for-profit.

Partners should be aware that each partner, certainly collectively (jointly), and possibly individually (severally), liable for all of the debts of the partnership. This means that if only partner has any assets, then that partner may be called upon to satisfy all of the partnership’s debts.


The most commonly accepted reason for setting up a company is to minimize tax (see Pub Myths, below). A company is an appropriate structure where one of two circumstances exists: either your business is making considerable more money than you expend on all private and living expenses, or you are a band/theatre/dance group and are doing a lot of touring.

In the first case you can pay yourself whatever salary you need to live on, and then let the company pay tax at 30% on whatever is left. You just need to remember that when you subsequently draw dividends from the after tax profit, you will then pay the difference between your tax rate and the 30% company tax rate. If you think about it, that will make sense as to why you would only set up a company if (a) you’

re earning more than the 30% tax rate threshold and paying tax at 46.5% – and (b) you can live on an amount below that threshold, otherwise you might as well pay the tax in the first place.

In the second case you can, as an employee of the company, be paid a per diem to cover meal, accommodation and incidental expenses incurred while touring. This is a tax free allowance (if it doesn’

t exceed the ATO guidelines) and, depending on cash flow, could be a substitute for some salary.


A trust is useful where there are opportunities to distribute income or capital to beneficiaries who could not be classified as employees or partners. Trusts include:

• discretionary family trusts – where income is distributed at the discretion of the trustee to close family members
• discretionary non-family trusts – where income can be distributed to a wider class of beneficiaries, including companies
• unit trusts – where the trust interests are held by unit-holders (something like shareholders in a company) and income is distributed on the basis of the number of units held
• hybrid trusts –

from which income and capital can be separately distributed.

Anyone contemplating setting up a trust should seek specialist advice.

The advantage of a company, as mentioned, is that the tax rate is capped at 30%. A disadvantage, though, is that a company does not get the 50% Capital Gains Tax discount. With trusts and partnerships, that 50% benefit flows through to the individual beneficiaries, unit-holders and partners.

This myth is so widespread it deserves special attention: Suppose you transfer all your assets into your partner’s name and set up a company of which you are the only director and shareholder. If the company goes belly-up, sure, your creditors will find your cupboard is bare when they sue you for knowingly trading while insolvent. However, in the meanwhile, you won’t have been able to take out a lease on premises, get a business overdraft, borrow for a car, or otherwise enter into any situations where you have to provide a director’s guarantee, because your guarantee is worthless. I hope, also, that the relationship with your partner is a solid one.

Transfer the family home into a trust? You lose the Capital Gains Tax exemption of the principal place of residence.

I say: show me a lawyer who wants you to set up a complicated structure to protect your assets, and I’ll show you a lawyer who will be sharpening his pencil when asked by a creditor to get at the assets hiding behind the entity.

See also Capital Gains Tax