One of the most consequential decisions you will make as a skincare brand founder is not about your formula, your packaging, or your marketing strategy. It is the legal and tax structure you choose to operate under. Get this right and you protect your personal assets, minimise your tax burden, and position your brand for growth. Get it wrong and you could be personally liable for a product liability claim, paying far more tax than necessary, or facing a costly restructure down the track.
In Australia, there are four primary business structures available to cosmetic brand founders: sole trader, partnership, company (Pty Ltd), and trust. Each carries a different tax rate, a different level of personal liability protection, and a different level of administrative complexity. With the 2026–27 Federal Budget introducing significant changes to trust taxation from 2028, the decision has become even more nuanced.
This guide explains each structure in plain terms, with the verified tax rates and the real pros and cons for a skincare business specifically.
Structure 1: Sole Trader
A sole trader is the simplest structure. You register an ABN in your own name, register a business name (optional but recommended), and trade as an individual. There is no separate legal entity — you and the business are one and the same.
Tax Rate
As a sole trader, all business profits are treated as your personal income. You pay tax at the individual marginal income tax rates:
| Taxable Income | Tax Rate (2025–26) |
|---|---|
| $0 – $18,200 | Nil (tax-free threshold) |
| $18,201 – $45,000 | 16 cents for each $1 over $18,200 |
| $45,001 – $135,000 | $4,288 + 30 cents for each $1 over $45,000 |
| $135,001 – $190,000 | $31,288 + 37 cents for each $1 over $135,000 |
| Over $190,000 | $51,638 + 45 cents for each $1 over $190,000 |
| Feature | Advantages | Disadvantages |
|---|---|---|
| Liability | None to set up | Unlimited personal liability — your house, car, and savings are at risk if a product liability claim exceeds your insurance |
| Tax | Access to the tax-free threshold ($18,200) | All profits taxed at personal marginal rates — at $135,000 profit you pay 37 cents in the dollar |
| Setup cost | Essentially free — just an ABN registration | No asset protection whatsoever |
| Complexity | Minimal — simple BAS, simple tax return | Difficult to bring in investors or business partners |
| Skincare risk | Fine for very early-stage testing | Not recommended once you have a product on the market — one serious allergic reaction claim could be personally ruinous |
Structure 2: Company (Pty Ltd)
A proprietary limited company (Pty Ltd) is a separate legal entity from its directors and shareholders. The company can own assets, enter contracts, and be sued — independently of you as an individual. This is the most common structure for growing cosmetic brands in Australia.
Tax Rate
For the 2025–26 and 2026–27 financial years, a company that qualifies as a "base rate entity" (aggregated turnover under $50 million, and less than 80% passive income) pays a flat company tax rate of 25%. All other companies pay 30%.
| Feature | Advantages | Disadvantages |
|---|---|---|
| Liability | Limited liability — personal assets are generally protected from business debts and claims | Directors can still be personally liable for insolvent trading or unpaid superannuation |
| Tax | Flat 25% rate for small businesses — significantly lower than top personal marginal rates | Profits distributed to shareholders as dividends are then taxed again at personal rates (though franking credits offset this) |
| Setup cost | Straightforward — ASIC registration fee, then annual review fee each year | More expensive and complex to set up and maintain than a sole trader |
| Credibility | Pty Ltd in your brand name signals professionalism to retailers, stockists, and wholesale buyers | Annual ASIC obligations, financial reporting, and director duties apply |
| Skincare fit | Ideal once you have a product on the market — the liability protection is critical in the cosmetics industry | Requires a good accountant to manage correctly |
Structure 3: Discretionary (Family) Trust
A discretionary trust is a legal arrangement where a trustee (either an individual or a company) holds and manages assets for the benefit of beneficiaries. The trustee has discretion over how much income to distribute to each beneficiary each year. This flexibility has historically made trusts popular for income splitting — distributing profits to lower-income family members to reduce the overall tax burden.
Tax Rate
A trust itself does not pay income tax. Instead, the income is distributed to beneficiaries, who pay tax at their own marginal rates. If income is distributed to a beneficiary on a low income (e.g., a spouse earning $30,000), it is taxed at their lower marginal rate. If no distribution is made, the trustee pays tax at the top marginal rate of 45%.
| Feature | Advantages | Disadvantages |
|---|---|---|
| Tax (current) | Income splitting to lower-income beneficiaries can reduce overall family tax burden | From 2028, minimum 30% tax on all distributions — significantly reducing this advantage |
| Asset protection | Assets held in trust are generally protected from the personal creditors of beneficiaries | The trustee can still be personally liable — a corporate trustee is recommended |
| Flexibility | Trustee can vary distributions each year based on each beneficiary's income | Cannot retain profits in the trust at a low tax rate — must distribute or pay 45% |
| Complexity | Excellent for family-run skincare businesses with multiple income earners | More complex and expensive to establish and administer than a simple Pty Ltd |
Structure 4: Corporate Trustee Structure (Trust + Company)
This is the most sophisticated structure and the one used by many established Australian cosmetic businesses. Instead of an individual acting as the trustee of a discretionary trust, a separate Pty Ltd company is appointed as the trustee. The company (as trustee) then manages the trust assets and distributes income to beneficiaries.
Why Use a Corporate Trustee?
When an individual acts as trustee and is sued, their personal assets can be at risk. When a company acts as trustee, the liability is limited to the company's assets — not the personal assets of the directors. This provides an additional layer of protection on top of the trust structure itself.
| Feature | Advantages | Disadvantages |
|---|---|---|
| Liability | Maximum asset protection — two layers of separation between you personally and business liabilities | Directors of the corporate trustee can still be personally liable for insolvent trading |
| Tax | Combines the income-splitting flexibility of a trust with the limited liability of a company | Two entities to maintain (the trust and the trustee company) — higher accounting and ASIC fees |
| Continuity | The company as trustee provides continuity — the trust doesn't need to be wound up if a trustee dies or leaves | Most complex and expensive structure to establish |
| Skincare fit | Ideal for a scaling cosmetic brand with significant assets, IP, and multiple brands under one holding structure | Overkill for a brand in its first 1–2 years of operation |
The At-a-Glance Comparison
| Structure | Tax Rate | Personal Liability | Complexity | Best For |
|---|---|---|---|---|
| Sole Trader | Marginal rates (up to 45%) | Unlimited | Very Low | Pre-launch testing only |
| Pty Ltd Company | 25% (base rate entity) | Limited | Medium | Most growing skincare brands |
| Discretionary Trust | Beneficiary marginal rates (min 30% from 2028) | Depends on trustee | Medium–High | Family-run brands (review before 2028) |
| Corporate Trustee | Beneficiary marginal rates (min 30% from 2028) | Limited (two layers) | High | Established multi-brand operations |
What Structure Does The Skin Science Company Use?
The Skin Science Company operates as The Trustee for Skin Science Australia Trust (ABN 79 567 634 491), a corporate trustee structure. This reflects the brand's position as a scaling, multi-brand operation with significant raw material inventory and IP assets that require maximum protection. It is not the right starting point for every brand — but it demonstrates where a successful cosmetic business can evolve to over time.
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Shop Raw IngredientsFrequently Asked Questions
What is the best business structure for a new skincare brand in Australia?
For most new skincare brands that are ready to sell products, a Pty Ltd company is the most appropriate starting structure. It provides limited liability protection (critical in the cosmetics industry), a flat 25% tax rate for eligible small businesses, and is straightforward to set up through ASIC. A sole trader structure is only appropriate for very early-stage testing before any products reach customers.
What is a corporate trustee and why do cosmetic businesses use one?
A corporate trustee is a Pty Ltd company that acts as the trustee of a trust, rather than an individual. Cosmetic businesses use this structure because it provides two layers of liability protection — the trust separates business assets from personal assets, and the company limits the personal liability of the directors. It is particularly valuable for businesses with significant IP, brand assets, or physical inventory.
How does the 2026–27 Budget affect family trusts?
The Federal Government has announced that from 1 July 2028, a minimum 30% tax rate will apply to all discretionary trust distributions. This significantly reduces the income-splitting advantage that family trusts have historically provided. If you currently operate through a family trust, you should speak with your accountant before 2028 to assess whether restructuring is appropriate for your circumstances.
Do I need an ABN to sell skincare products in Australia?
Yes. Any individual or entity carrying on an enterprise in Australia must register for an ABN (Australian Business Number). You register your ABN through the Australian Business Register (ABR) at abr.gov.au. If your turnover exceeds $75,000 annually, you must also register for GST.
