Most businesses start with whatever structure was quickest and easiest at the time. A sole trader registration because it was simple. A company because someone said you should have one. A trust because your mate had one. But as your business evolves (as turnover grows, risks change, and your personal circumstances shift), the structure you started with may no longer be the right fit.
Restructuring is not something to do lightly. It involves costs, time, and potential tax implications. But staying in the wrong structure can cost you far more in the long run. Here are five signs that it might be time to take a hard look at how your business is set up.
1. You Are Operating as a Sole Trader When You Should Be a Company
Operating as a sole trader is simple and inexpensive. There is no separate legal entity, minimal compliance requirements, and your tax return is straightforward. But simplicity comes at a cost: as a sole trader, you are personally liable for all business debts and obligations. If something goes wrong (a client sues you, a supplier takes legal action, or the business fails with outstanding debts), your personal assets (including your home) are at risk.
Beyond liability, there is the tax question. Sole trader income is taxed at your personal marginal tax rate, which can reach 39% on income over $180,000. A company, by contrast, pays a flat 28% tax rate. If your business is consistently profitable and you do not need to draw all the profits out immediately, a company structure can offer meaningful tax savings.
The trigger point varies, but as a general guide, if your business is consistently earning more than $100,000 in profit and you are still operating as a sole trader, it is worth running the numbers on incorporation.
2. You Have Multiple Entities When One Would Do
We sometimes see business owners who have accumulated multiple companies, trusts, or partnerships over the years, often on the advice of someone who suggested it would be good for tax purposes. The reality is that every additional entity adds compliance costs: separate tax returns, separate financial statements, separate bank accounts, and additional accounting fees.
There are legitimate reasons for having multiple entities (for example, separating high-risk activities from asset-holding, or ring-fencing different business operations for genuine commercial reasons). But if you have three companies and a trust purely because someone once told you it would minimise your tax, it is worth reviewing whether that advice still holds up. In many cases, simplifying the structure saves more in compliance costs than it costs in additional tax.
3. Your Tax Efficiency Has Drifted From Commercial Reality
Tax planning is important, and there are many legitimate ways to minimise your tax burden. But the IRD takes a dim view of arrangements that have no commercial rationale beyond tax reduction. If your structure exists primarily to shift income, create artificial losses, or avoid obligations, you are exposed to the general anti-avoidance provision, which gives the IRD broad powers to reconstruct your tax position.
Good tax planning aligns tax efficiency with genuine commercial objectives. If you find that your structure creates complexity, limits your operational flexibility, or requires convoluted transactions to achieve a tax outcome, it may be time to simplify. A well-designed structure should make your business easier to run, not harder.
4. Your Look-Through Company Is No Longer Working for You
Look-Through Companies (LTCs) were introduced to allow small company owners to have business profits and losses attributed directly to them personally, rather than being taxed at the company level. They can be useful in specific situations (for example, when a business is generating losses that the owner wants to offset against other personal income, or when the 28% company tax rate is higher than the owner's marginal rate).
However, LTCs come with restrictions. They are limited to five or fewer shareholders (all of whom must be natural persons or certain types of trusts). They have specific rules around the deductibility of losses, and those rules can catch owners off guard, particularly the owner's basis limitation, which restricts loss claims to the amount the owner has actually invested in the company.
As a business grows and becomes consistently profitable, the LTC structure often stops making sense. If your profits are reliably above your personal expenditure needs, a standard company structure taxed at 28%, with the ability to retain profits in the company, may be more efficient. The transition from LTC to standard company is not always straightforward, so planning is essential.
5. You Are About to Make a Major Change and Have Not Reviewed Your Structure
Major business events are natural trigger points for a structural review. These include:
- ●Taking on a new business partner or shareholder
- ●Buying or selling a business or significant assets
- ●Expanding into a new market (particularly overseas)
- ●Succession planning or preparing for exit
- ●Significant changes in personal circumstances (marriage, separation, new family members)
- ●A substantial increase in revenue or profitability
Each of these events can change the optimal structure for your business. For example, bringing in a new business partner may require a shift from a sole trader to a company or partnership. Preparing for an exit may involve restructuring to maximise the sale price or minimise the tax on the proceeds. Expanding overseas almost certainly requires advice on the most tax-efficient way to operate in the new jurisdiction.
Get Advice Before You Restructure, Not After
The single most important piece of advice we can give is this: talk to your accountant or tax adviser before you restructure, not after. We regularly see clients who have already incorporated a new company, set up a trust, or transferred assets between entities, and then come to us to sort out the tax consequences. By that point, the options are often limited, and the cost of fixing things is significantly higher than the cost of getting advice upfront.
A proper structural review considers your current situation, your goals, the tax implications of any change, the compliance costs of the new structure, and the transition path from where you are to where you need to be. It is not a decision that should be made on the back of a conversation at a barbecue.
“Talk to your accountant before you restructure, not after.”
If any of these signs resonate with you, book a consulting engagement with Lateral Advisory. We will review your current structure, model the alternatives, and give you a clear recommendation. Before you commit to anything.
Book a consultation