Changing from Sole Trader to Company Structure

It’s a common choice for a newbie business owner to operate using a sole trader structure, simply because it’s fast, easy and cheap to set up with minimal ongoing costs.

However, as the business grows, you may find yourself outgrowing the sole trader structure. If you hire employees, intend to seek investment to expand your business or simply wish to manage your personal liability, you may consider changing to a company structure.

What is a Company Structure

The law treats a company as a separate legal entity. This means that you will not be held personally responsible for the actions of your business. A company structure is also beneficial as it continues to survive even after the owners and directors can no longer run its operations.

Benefits of a Company Structure

  • Limit your personal liability as the personal assets of the owners cannot be applied for the payment of debts of the company, in normal cases.
  • Minimise tax liability as the company’s income is assessed as a separate entity. The profit of the company can be split into the retained earnings of the company after paying wages to the business owner, and income of the owners by way of share dividends. The company’s net profit is taxed based on the corporate tax rate which is lower than the marginal tax for individuals.
  • Ability to retain profits in the company to fund future growth.
  • Create a better and more legitimised brand image to customers and suppliers.
  • Raise significant capital for the business via securing funding from investors.

Capital Gains Event

The sale of a sole trader business to a company is a capital gains event, which would normally create a taxable capital gain for the sole trader. Under the replacement asset rollover, the capital gain on the sale of the business to the company is deferred if the transaction is structured as follows:

  • The sole trader transfers the business assets to the company (including any business liabilities) to the company in exchange for ordinary shares in the company.
  • After the transaction is complete, the sole trader must own 100% of the ordinary shares in the company.

Implementation & Process

  • Establish the company structure.
  • Prepare the business sale agreement.
  • Transfer (sell) the sole trader’s business assets and liabilities to the company in exchange for ordinary shares in the company.

Note: After the transaction is complete, the sole trader must own 100% of the ordinary shares in the company, but this does not prevent the company from subsequently issuing additional shares to another party, so as to bring a new investor or partner into the business.


At Fortiz Accountants, we routinely set up structures for business owners. Contact us if you are a sole trader with a growing business wanting to find out whether it’s worthwhile operating under a company structure (or even a trust structure) before taking the next step.

Useful Tips for Your Small Business in 2019

It’s the start of a new year for you and your business and a good time to review your business finances at just over the mid-year point of the financial year.

Maximise the $20,000 Depreciation Deduction

If you run a small business which has turnover of less than $10 million a year, you may be eligible for an instant asset write off. This means that you can claim a deduction for assets used for business purposes if it costs less than $20,000 and purchased between 1 July 2018 to 30 June 2019.

If the asset costs more than $20,000, the total of the cost must be put into a small business pool. Small business owners can claim 15% of that pool in the first year and then 30% after that. If by the end of financial year, your asset pool is below the $20,000 threshold, then the balance can be written off.

This deduction can be used to claim deductions for items used for your business, eg. furniture, equipment, machines, etc. Note that you can only claim deductions for the part of the cost that is used for your business. For example, if you were to purchase a laptop that you plan to use for your business 60% of the time and for private use 40% of the time, you must only claim the 60% of the cost in your depreciation deduction.

Note that if you are registered for GST, you must exclude the GST amount from the cost of the asset when you claim. Otherwise, if you are not registered for GST, you claim the whole cost, including GST.

Utilise the Small Business Income Tax Offset

If you run a small business as a sole trader with a turnover of less than $5 million in the financial years 2019-20, you may be eligible for an 8% “discount” from the tax of your business income, which can cut up to $1,000 from taxes payable. This rate is fortunately set to keep increasing in future years.

Seek Professional Advice

If you have just started a business, it may be beneficial to seek help from professionals, whether it is financial advice, legal advice, tax advice or a range of accounting services. They can assist you with your business and help you to avoid surprises and navigate any obstacles along the way.

Your accountant’s fees are fully tax deductible as business expenses in the year you incur them. Ask your tax agent about claiming professional advice fees in your next tax return.

Understand the Legal Structure of your Business

Small businesses should review their PAYG income tax instalments and notify the ATO if expected profit will be higher or lower than previous financial years.

Take Advantage of Small Business Concessions

Make sure that you have set-up the most appropriate legal structure for your business. There are 4 commonly used business structures in Australia: sole trader, partnership, company and trust.

It’s important to understand the responsibilities of each structure because the structure you choose may affect:

  • the tax you are liable to pay
  • asset protection
  • costs

You are not locked into any structure and you can change the structure as your business changes or grows.

If you’re unsure which structure to choose, contact us at Fortiz Accountants for advice and assistance with set-up.

Stay on Top of Superannuation Payments

Ensure that your business’s superannuation obligations are met on time, as you can only claim deductions when you make payment before the deadlines. Late payments are not deductible!

Maximise Deductions While Ensuring that they are Business-Related

 Be sure that you maximise deductions for expenses that you are eligible for. However, be careful not to claim unjustifiable expenses just because you think you can. If selected for an audit, the ATO will require you to provide invoices/receipts and in some instances, provide justification as to why these are business-related expenses. Understand your expenses in detail and how they relate to the production of business income.

Speak to an experienced tax agent if you have specific questions about what you can and can’t claim as a deduction.

Set Up a System Early On

 Even if you are just starting out with your business, setting up a system will help to reduce stress later on. Start how you want to finish! Documenting the ins and outs of your business will help prepare you not only for tax time but also help you to understand how your business is performing throughout the year. Cloud accounting software, such as, Xero, MYOB or QBO are very popular these days. Fortiz Accountants can certainly assist you with setting up your accounting software and can provide training on how to use your selected software.

Engage a Trustworthy Accountant

Dealing with ATO, ASIC and other government departments can be stressful for you and can often take time off what you’d rather be focusing on: your business.

Laws change constantly for many reasons, so having a good accountant behind you might be the best thing after sliced bread!


At Fortiz Accountants, we sincerely care about your business and will learn its inner workings so that we can offer the best advice on a timely basis, helping to you maximise your business profits while minimising your tax bill. Contact us if you have any questions on any of the tips above or if you are interested in working with us to ensure your business will thrive in 2019 and beyond.

Eliminate Division 7A Problems

Division 7A is an ATO integrity measure to ensure that private companies don’t make tax free distributions of profits to shareholders or shareholders’ associates in the form of payments, loans and debts forgiven.

These rules only apply where the companies have retained profits. Under Division 7A shareholders or associates who receive payments or loans from their private company must include the value of those payments or loans as unfranked dividends in their individual tax return. As these unfranked dividends will be taxed at the individuals marginal tax rate this is not a tax effective strategy.

Options to Eliminate Division 7A Loan Problems

  • Arrange for the shareholder enter into a share buy-back with the company to eliminate the Division 7A loan.
  • Arrange for the payments or loans repaid prior to the date of lodgement of the company’s tax return with the ATO.
  • Enter into a written Division 7A loan agreement prior to the date of lodgement of the company tax return. The Division 7A loan agreement must have a maximum seven year loan period (if the loan is unsecured) with interest and repayments dictated by the Division 7A legislation. The interest rate is based on the FBT interest rate.
  • Pay directors’ fees or wages in the 30th June financials to eliminate the Division 7A loan. The directors’ fees will be taxable to the individual but the company will receive a tax deduction for the payment.
  • Arrange for the director to sell assets to the company or take over some of the company’s liabilities.
  • ay a dividend (ideally franked).

ATO website: Loans by private companies

Draft Tax Determination: TD 2017/D3

At Fortiz Accountants, we sincerely care about your business and will learn its inner workings so that we can offer the best advice on a timely basis, helping to you maximise your business profits while minimising your tax bill. Contact us if you require any advice or assistance with eliminating Division 7A problems.

Australia & Malaysia Agree to Share Financial Data to Fight Tax Evasion

From time to time, Fortiz Accountants receive calls and emails from concerned Malaysians living in Melbourne and Malaysians planning to migrate to Australia regarding possible exchange of financial data of tax residents between Malaysia and Australia.

Some of the common questions relate to the transfer of EPF funds to Australia, transfer of cash savings or cash gifts received from parents to bank accounts in Australia, possible capital gains taxes implications on the sale of properties in Malaysia after moving to Australia, Australian tax on employment or business income earned in Malaysia while the rest of their family members live in Australia.

The 6-month rule, the 6-year rule and the other taxation topics, such as, taxation on worldwide income earned by Australian tax residents are often explained. During tax advice/tax planning sessions, we have provided clarity to clients regarding their personal circumstances and how the various tax laws apply to them. Our advice have included appropriate timing for disposal of assets, obtaining market valuations of assets, keeping important records and paper trails, and so on.


One of the partners at Fortiz Accountants moved from Malaysia to Australia over 20 years ago. Contact us for assistance if you are migrating from Malaysia to Australia, a recent migrant from Malaysia, planning to purchase an investment property in Australia or a Malaysian entrepreneur planning to start a business in Australia.

How to Get the Most Out of Your Accountant

A typical week goes something like this:

A client walks into one of our offices, wanting to switch accountants as his previous accountant let him down with a backlog of un-lodged business tax returns and isn’t responsive to enquiries or requests.

Or a client complains bitterly about paying too much taxes because her accountant didn’t advise her how to reduce taxes.

Or an otherwise astute business person decides to do his own bookkeeping instead of engaging a bookkeeper or an accountant.

Upon probing, it is usually uncovered that these clients do not respond to their accountants’ queries or requests for supporting documents (ie. invoices & receipts), are unwilling to pay for accountants’ advice, prefer to DIY just about everything or worse, haven’t paid their accountant’s bill!

When you contact an accountant, expecting not to pay for their advice, then it’s more likely than not that you will get stock answers or no advice at all. You wouldn’t pay $1 and expect to get a good cup of coffee worth $5, so why would you expect to get tax or financial advice for next to nothing?

Like you, accountants need to make a living. If your accountant spends a lot of time providing free advice, then your accountant isn’t going to stay in business for long.

What You Need to Do

Maintain open communications with your accountant throughout the year. It’s a two-way street. If you regularly ignore your accountant’s emails or requests for additional information/documents, then you can most certainly expect to wait a while for your accountant to respond to you.

Be organised. Giving documents or information to your accountant in dribs and drabs will most certainly result in more time spent on your file, which translates to higher fees.

Most importantly, if you want to get the most of your accountant, be prepared to allow your accountant the liberty to assist you with all aspects of bookkeeping, BAS returns, tax returns and so on. This will put your accountant in a good position to provide you with sound cashflow analyses, forecasts and projections, and allow your accountant to pre-empt you of any financial issues ahead, and in so doing, empower you to take the necessary action well in advance.


Not all accountants charge by the minute. At Fortiz Accountants, we certainly don’t charge extra for all business clients who are on monthly fee packages. We are always a friendly phone call away (when we are not engaged in client meetings) or contactable by text messages and emails during business hours. Make an appointment with us at either one of our offices to find out how we can assist you.

Business Benchmark: Restaurant

One question we are often asked by business owners is how their business fares compared to other businesses in the same industry. In this blog post, we share the key benchmarks for coffee shops.

Turnover up to $250K

Cost of sales to turnover: 38%
Labour: 20%
Rent: 15.5%
Vehicle expenses: 2.5%
Other expenses: 7%
Profit: 17%

Turnover between $250K to $600K

Cost of sales to turnover: 37%
Labour: 24.5%
Rent: 13%
Vehicle expenses: 1.5%
Other expenses: 12%
Profit: 12%

Turnover above $600K

Cost of sales to turnover: 35%
Labour: 29%
Rent: 9.5%
Vehicle expenses: 0.5%
Other expenses: 17%
Profit: 9%


One of our partners at Fortiz Accountants has extensive background in Hospitality and F&B operations. Contact us if you require any advice or assistance with ensuring the profitability of your F&B Business.