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WHAT ARE THE TAX IMPLICATIONS FOR INCORPORATING YOUR BUSINESS?

Business incorporation will be subject to tax, reporting and compliance implications for individual taxpayers as well as for the business. A registered tax agent, accountant or a solicitor can help taxpayers make a concrete decision regarding incorporating business based on their situation. They will help to decide whether to incorporate business or not and make taxpayers familiar with tax implications of incorporating business. This information is limited to tax and superannuation issues arising from restructuring a business through incorporation. A taxpayer should also contact state and local government bodies to be advised on other related implications of business incorporation. The implications are:

•  Incorporating and capital gains tax implications are applicable if the taxpayer incorporates and transfers business assets from existing business to new business; 
• Debtors: if the debt is transferred to a new business and that debt is written off as bad debt the new company will not be allowed to claim a deduction for that;
• Prepayments: after the incorporation, the original business will be able to claim a deduction for prepayments but no deduction will be available for the new structure;
• Employee leave entitlements: new company may assume accrued leave liability while incorporation;
• Capital expenditure incurred in restructuring business may be deductible equally over five years’ period; 
• Using service entities: If taxpayer chooses to incorporate an entity to employing staff, which are on-hired to the business, they need to ensure that the amounts claimed for these services are correctly calculated.
• Stamp duty is usually payable on the transfer of a business by the purchaser of the business.