![]() Jackson and Tara are the Trustees of the Charming Family Trust. A trust is a private legal arrangement where the Trustee holds assets (for example property or cash) in trust for the benefit of the beneficiaries. Trusts are, in principle, a very simple concept. Who pays the tax on profit? – The Company does.įor these purposes, let’s consider a Trust as being a typical Family Trust (Discretionary Trust) that has a Company as its Trustee. Companies are regulated by ASIC (Australian Securities & Investments Commission).Įach company may have its own set of rules which can be laid out in its constitution. As it is a legal entity, it is separate from its own directors and shareholders. Each have equal ownership interest within the company.Ī company is a legal entity and it is governed by the Corporations Act 2001. Therefore, each individual partner pays their own tax.įor these purposes, let’s consider a Company as being a small Private Company with two Directors and 2 shareholders. ![]() This income is then dealt with in their individual tax returns. The net profit of the partnership is split between the partners based on the details contained in the Partnership agreement. Who pays the tax on profit? – The Partners do. The partnership agreement is the governing document of the partnership. This ownership interest amongst other things is determined by the partnership agreement. The partners may have equal interests in the business or unequal interests. Who pays the tax on profit? – The individual does.Ī partnership is an association of two or more people (or entities) operating a business as partners. Unlike other structures below, there is no governing document. They own the assets, owe the liabilities and although they may use a trading name different to their legal name, they are the reporting entity. So how do the structures differ?Ī sole trader is the simplest form of business structure a sole trader is an individual who is legally responsible for all aspects of the business. The four main trading structures of Sole trader, Partnership, Company and Trust all treat income tax differently. One of the complicating factors in determining how to account for income tax is due to the different structures in which clients operate. Why is accounting for income tax such a perplexing issue? But when it comes to accounting for income tax, something that as Mr Franklin stated was a certainty, there is often confusion. But should it be? We can account for income and expenses, from many different sources for many different clients across many different industries without breaking a sweat. The issue of how to account for income tax for our clients is a complicated one. In 1789, Benjamin Franklin stated that “in this world nothing can be said to be certain, except death and taxes.” A leading thinker of his time, it is a shame he didn’t think harder about how we account for those taxes in our data files and financial reports.
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