The ATO has identified the following common errors that can result when small businesses change their business structure from a sole trader to a more complex company or trust structures:
- reporting income for the wrong entity;
- claiming expenses incurred by another entity as business expenses; and
- personal use of business bank accounts;
- the company is a separate legal entity from them as a shareholder or director;
- money that the company earns, belongs to the company;
- the company owns its assets, and they cannot treat them as their own; and;
- if a director or shareholder of a company uses company assets for their personal use, it must be properly treated as a benefit to the director or shareholder (and Division 7A or FBT could apply if not treated correctly).
- holding the trust property (including assets, investments and income) for the benefit of the beneficiaries;
- managing the trust’s tax affairs; and
- paying the trust’s tax liabilities.
Therefore, they ask that practitioners remind any small business clients who have incorporated that:
If a client moves to a trust structure, practitioners should remind them of the trustee’s responsibilities, including: