Making the transition from employee to business owner in the mining and resources sector is a bold move, but it is also a technical one. Beyond the excitement of independence and opportunity, there are critical decisions that will shape your success for years to come. Choosing the right business structure, meeting compliance obligations, and planning for tax efficiency are essential.
If you are still considering whether consultancy is the right path, look at our previous article Your Practical Checklist for Starting a Consultancy Business. For executives weighing up redundancy options, From Payout to Partnership explores how to leverage your experience for long-term success.
Why Structure Matters
Your business structure is more than a legal formality. It determines how you pay tax, protect assets, and meet regulatory requirements. In mining, where projects are high-value and compliance is strict, poor structuring can lead to unnecessary tax bills, personal liability, and penalties for incorrect reporting.
From an accounting perspective, these decisions influence not only your current tax obligations but also your ability to manage cash flow, claim deductions, and prepare for audits. For example, under the ATO’s Personal Services Income (PSI) rules, if most of your income comes from your personal skills or efforts, you may be restricted from splitting income or claiming certain deductions. These rules apply to many consultants in mining and resources, so understanding them early is critical.
Who Should Be Thinking About This?
Structuring advice is not just for large businesses. It is essential for senior engineers moving into advisory roles, executives offered redundancy packages, professionals with complex remuneration such as Employee Share Schemes (ESS), and anyone planning to employ staff. Each scenario carries unique tax and compliance implications that can affect your long-term financial position. For example, an executive who takes a redundancy payout without considering tax implications could miss opportunities to contribute to superannuation or structure income for long-term efficiency.
Personal Services Income Rules
The Personal Services Income (PSI) rules are complex, and their application may vary from year to year, depending on your circumstances. The PSI rules effectively seek to ensure that, if a person is generating all or most income within a business structure (irrespective of the type of structure you use), that that person is subject to tax on that income.
Like with all things tax related, these rules are nuanced and different people fulfilling similar roles may have different outcomes depending on their individual circumstances.
As a broad overview, there are generally four (4) different ways the PSI rules may overlay your circumstances.
- Employee:
As an employee you have no ability to split your income with related parties or otherwise retain profits within a structure, potentially at a lower tax rate (such as a company). In addition, your available deductions may also be limited. - Attributable PSI:
Consultants may be subject to the attributable PSI rules where they generate income by virtue of their personal skills and efforts but are unable to pass one of the four (4) Personal Services Business tests. Without going into too much detail, these tests consider whether the consultant:
(1) is paid to produce a result, are required to provide their own tools of the trade and are liable for any defects,
(2) has employees that generate at least 20% of the principal income of the business,
(3) has unrelated clients where no one client accounts for 80% or more of the total consulting income generated; or
(4) has a separate and dedicated place of business (which cannot be at their home).
Where the attributed PSI rules apply, all the profits of the consulting business are attributed to the person doing the work (for tax purposes) and deductions are limited to be roughly in line with those available to employees.
- Personal Services Business (PSB):
Where one of the PSB tests is passed, the consultant is potentially able to access a slightly more concessional tax framework. The consultant still is not able to retain profits within a business structure; however associates may be paid arm’s length rates for services provided to the business for non-principal work (e.g. bookkeeping, office management, etc). The available deductions are also expanded. - Business:
Where a consultancy grows beyond a mere one-person activity, to having multiple principal income generators, the opportunities for income splitting and profit retention increase. As a broad simplification, the main requirement in this scenario is to ensure that business owners and associates that work within the business are paid an arm’s length income and are taxed on that income. Outside of this requirement, there may be opportunities for significant tax minimisation strategies which will largely depend on individual circumstances.
Understanding Your Options
There is no one-size-fits-all structure. Each option has technical implications:
Sole Trader
This is the simplest and cheapest structure to establish, but it may leave you personally liable for business debts. In addition, many mining companies will not engage sole traders for major projects, preferring companies or trusts. Income will likely be taxed at your marginal rate.
Company
A company offers asset protection and a flat tax rate (currently 30% for large companies and 25% for base rate entities) however the PSI rules may apply (refer above). Companies come with ASIC registration, director duties under the Corporations Act, and annual compliance reviews. You may need to manage PAYG, superannuation and GST obligations and ensure directors meet residency requirements. Companies also require accurate record-keeping for tax and financial reporting, and directors can face personal penalties for breaches.
Trust
Trusts provide flexibility and potential tax advantages, especially for income splitting. They are complex and require a properly drafted trust deed and often a corporate trustee. PSI restrictions can limit income splitting for service-based businesses (refer above), so professional advice is essential. Trusts also require annual resolutions and careful management to avoid compliance issues.
GST, superannuation and PAYG obligations may also apply.
Here is a quick comparison of business structures:
| Feature | Sole Trader | Company | Trust |
|---|---|---|---|
| Setup Cost | Low (ABN registration only) | Moderate (ASIC registration, legal fees) | Higher (Trust deed, corporate trustee recommended) |
| Tax Rate | Individual marginal rates (up to 45%) | Flat rate: 25% (base rate entities) or 30% but PSI rules may apply | Distributions taxed at beneficiary rates, but PSI rules may apply |
| Asset Protection | None: personal liability for debts | Strong: company is a separate legal entity but strongly recommend professional indemnity insurance is considered. | Strong: assets held by trustee, not individual but strongly recommend professional indemnity insurance is considered. |
| Compliance | Minimal (annual tax return) | High (ASIC annual review, director duties, PAYG, GST, Superannuation) | High (annual resolutions, trust deed compliance, PAYG, GST, Superannuation) |
| Client Preference | Often not accepted for major mining projects | Preferred for larger contracts | Accepted for complex arrangements |
| Succession Planning | Difficult | Easier: shares can be transferred | Flexible: beneficiaries can be changed |
Protecting Your Intellectual Property
If your consultancy develops proprietary technology, processes, or data, protecting intellectual property is vital. A common strategy is to hold IP in a separate entity, shielding it from trading risks and legal claims. This approach supports future growth, investment, and even exit planning. It is not just about registering trademarks; it is about aligning your IP strategy with your overall business structure. For example, if you plan to sell your business in five years, having IP in a separate entity can make the transaction smoother and more tax-effective.
The Risks of Getting It Wrong
Failing to structure correctly can result in denied deductions under PSI rules, penalties for incorrect GST, superannuation or PAYG reporting, and exposure to personal liability. It can also affect your ability to attract investors or sell the business later. Even restraint clauses in previous employment contracts can restrict your ability to work with certain clients or regions, so legal advice before you start is essential.
Practical Steps Before You Launch
Before you make the leap, take time to assess your situation. Review redundancy tax implications, check PSI compliance, and map out obligations for GST, PAYG, superannuation, and ESS reporting. A compliance calendar can help keep deadlines in view. Most importantly, seek integrated advice from financial, legal, and tax specialists who understand the mining sector. These decisions are technical, but they are also strategic. They set the foundation for growth, flexibility, and long-term success.
For personalised advice on structuring for success, contact Craig Barry at +61 (0) 7 3007 2000 or email contact@resourcesunearthed.com.au.
For more information about Craig, please click here.
Resources Unearthed is a solutions hub that provides integrated financial, legal, property and accounting and business advisory services for executives, professionals and business owners in the mining and resources sectors.
This information is general and does not consider your personal circumstances. Professional advice is recommended before making decisions.
