Individuals, Partnerships & Associations

Sole Trader

• Taxpayer is taxed as a natural person at their own marginal tax rate’
• Sole traders carry on business under their own name. All profits will be taxed at the sole trader’s marginal tax rate. If they have any tax losses, those can be offset straight against any income they have. This structure is suitable for small-medium or new business with less income and business assets. It is relatively easy to set up this entity and there is not much filing requirements.
• One major downside of sole trader’s structure is that they have unlimited personal liability for the business debts. Thus, it is very risky to operate as sole traders as owners can lose their personal assets for the business debts.  This business type is very dependent on the owners. One tip for sole traders is that it would be safer to transfer their private non-business assets to a family trust. 

Partnerships

• The partnership is not a separate taxpayer
• Partnership profits and losses are shared in proportion to the partnership agreement or equally if there is no agreement.
• Each partner is taxed as a natural person at their own marginal tax rate.

In general: A partnership is very similar to sole traders. A partnership is not a separate legal entity, thus general partners still have unlimited personal liability to cover the partnership debts. Profits or losses for the year will be distributed to partners in accordance with the terms of the partnership deed. Individual partners then pay tax at the marginal tax rate.