Most business structures in Melbourne and across Victoria were designed for where the business was — not where it is now. The sole trader arrangement set up in the first year of trading. The company incorporated quickly to meet a contract requirement. The trust established on someone's advice years ago that no one has looked at since.
Structures age. Businesses change. And the mismatch between the two accumulates quietly — in tax outcomes that are higher than they should be, in liability exposure that has grown with the business, in distributions that no longer reflect the current owners' needs.
The start of the financial year is the most practical moment to address this. Here is how to assess whether your current structure still fits.
The Four Questions That Matter
1. Is the tax outcome still appropriate?
Tax is often the most visible reason to review a structure. A sole trader in Victoria earning $350,000 in net business income is paying tax at their marginal rate — which could be as high as 47% — when a company structure would pay the corporate rate. The difference is material and, over multiple years, significant.
Conversely, a company structure is not always advantageous. The corporate tax rate does not benefit from the tax-free threshold, and retained profits in a company are not the same as accessible personal income. The right structure depends on how income is being earned, how it is being used, and what the business's plans are.
If your tax outcome has grown significantly without a corresponding review of whether the structure is still optimal, it is worth asking the question.
2. Is personal liability exposure being managed?
Sole traders bear unlimited personal liability for business debts and obligations. A successful claim against the business is a claim against the individual — their home, their savings, their assets.
As a business grows and takes on more clients, more staff, larger contracts, and greater operational risk, the exposure from unlimited personal liability grows with it. A company structure — or a trust with a corporate trustee — provides a degree of separation between the business and the individual that a sole trader arrangement does not.
For Melbourne and Victorian business owners in trades, professional services, consulting, and other sectors where liability risk is present, this is a consideration that deserves periodic review.
3. Does the structure still reflect who is in the business?
Structures designed for one business owner often need updating when a second owner comes in. Structures designed for two owners may need adjusting when one exits. Family businesses may need to address the interests of adult children becoming involved, or parents stepping back.
The entry or exit of a business owner, investor, or key person is one of the most common triggers for a structural review — and one of the situations where advice taken early is significantly cheaper than advice taken after a dispute has begun.
4. Are asset protection arrangements still appropriate?
Valuable assets — property, intellectual property, vehicles, equipment — are often held in the operating entity by default rather than by deliberate design. An operating entity that holds significant assets is more exposed in the event of a claim than one that holds only the minimum necessary to operate.
Separating assets from the operating business — through a holding company, a separate trust, or another arrangement — is a standard component of asset protection planning for Victorian small businesses. If your business has accumulated significant assets since it was structured, it is worth reviewing whether those assets are held in the right place.
The Most Common Structural Options for Melbourne Small Businesses
The four primary structural choices for small businesses in Melbourne and Victoria are:
- Sole trader — simple, low cost, unlimited personal liability, all income taxed at marginal rate
- Partnership — suitable where two or more individuals operate together, still carries personal liability, income split between partners
- Company — separate legal entity, limited liability, corporate tax rate, more administrative requirements
- Trust (typically discretionary) — flexible income distribution among beneficiaries, asset protection benefits, requires a trustee, more complex to administer
Many growing businesses use a combination — a company as trustee of a trust, or a holding company with an operating subsidiary. The right approach depends on the specific circumstances of the business, its owners, and its objectives.
Why 1 July Is the Right Time
Structural changes are cleanest at the start of the financial year. A restructuring implemented at 1 July means the new structure applies for the full financial year. The accounting is cleaner, the tax implications are clearer, and the transition does not create a split-year problem that requires additional work at year end.
Changes made mid-year — in October or February — require careful management of how income and expenses are allocated between the old and new structures. This adds complexity and cost that is entirely avoidable with better timing.
How Phan Campbell & Associates Can Help
Our accounting and legal teams at Phan Campbell & Associates in Footscray work with small and medium businesses across Melbourne and Victoria on business structure reviews and restructuring. We assess the current structure against the business's actual circumstances, identify what is working and what is not, and advise on the most practical path forward — whether that is staying with the current structure, making targeted adjustments, or a more significant restructure.
If you have not reviewed your structure recently, the start of FY26 is the right time to do it.
Frequently Asked Questions
1. When should a Melbourne sole trader consider incorporating?
Consider incorporating when revenue has grown significantly, personal liability exposure has increased, there are tax advantages available through a company, or when bringing on a business partner or investor. The start of the financial year is the cleanest time to make this change.
2. What is the difference between a company and a trust structure in Victoria?
A company is a separate taxable entity paying the corporate rate. A trust distributes income to beneficiaries who pay tax at their individual rates, offering flexibility for family businesses. The right choice depends on circumstances, goals, and risk profile.
3. How much does it cost to restructure a business in Victoria?
Cost varies by complexity. The start of the financial year is the most tax-effective time to restructure, minimising split-year accounting and tax complexity.