The Law Society has developed this page to give you starting points for the process of opening an ACT law practice. This information is a guide only, and you should seek advice from professional services (such as your accountant) during this process.
Decide on a business structure
The business structure you use determines how you are taxed. Asset protection is also an important consideration. The following structures are available for lawyers to trade through in the ACT.
|Entity||Who is taxed||How to lodge and pay tax|
|Sole trader||Taxed at the practitioner’s marginal rate.||Lodge business income as part of the individual’s tax return.|
|Partnership1||Partners are taxed on their share of the partnership income or loss.||The partnership lodges a Partnership Tax Return. Each partner reports their partnership distribution (share of partnership income) in their own tax return.|
|Company1, 2||Taxed at the company rate, dividends can later be paid to the shareholder.2||Company Tax Return.|
|Unit (fixed) Trust3||Taxed at each unit holders’ marginal rate.||The trust lodges a Trust Tax Return. Each unit holder reports their trust distribution (share of trust income) in their own tax return.|
|Discretionary (Family) Trust3||Taxed at each beneficiary’s marginal rate. Income is often shared between spouses to make use of lower marginal rates of taxation.||The trust lodges a Trust Tax Return. Each beneficiary reports their trust distribution (share of trust income) in their own tax return.|
1. Regardless of the structure chosen, the Personal Services Income (PSI) rules may classify income as that derived by the practitioner, which will be taxed at the individual’s marginal rate of taxation and the range of available tax deductions are limited.
2. Division 7A of the Income Tax Assessment Act 1997 contains anti-avoidance provisions that restrict the personal use of income taxed at the company rate.
3. Trusts nor partnerships of trusts can not be used as practice entities, but they can own shares in an incorporated legal practice.
ACT Law Society requirements
The Law Society has developed a handy checklist of items you'll need to attend to when opening an ACT law practice. You can download all the relevant forms at the bottom of this page.
- Advise the Society you will be establishing a law practice in the ACT.
- Depending on the business structure identified above, you may need to also complete an Incorporated Legal Practice (ILP) form or notice of Multi-Disciplinary Partnership form.
- Arrange Professional Indemnity Insurance directly with the insurer and notify the Society once the cover has been arranged.
- Apply for your ACT Practising Certificate if not already held.
- If opening a solicitor trust account refer to “Requirements for opening a trust account”.
- Complete the notification form to advise the Society once a trust account is open – notification is required within 14 days of opening the account, irrelevant of when it has funds deposited into it.
- If opening a trust account, you must also complete the notification form advising the Society who is authorised to withdraw trust funds and/or effect electronic transfers.
- Ensure your details are up to date on the Society’s website – you should log in to your member dashboard and update any areas of law you specialise in, along with additional languages you speak, to assist with the search function on the Society’s website.
Register for taxes
The State and Commonwealth Governments will not know your business exists unless you register for a number of taxes. To enter the withholding system and to avoid large debts accumulating:
- Obtain a Tax File Number (TFN)
- Obtain an Australian Business Number (ABN)
- Register for the Goods and Services Tax (GST)
- Register for PAYG Withholding
- Register for Fringe Benefits Tax (FBT)
- Register for Payroll Tax (if applicable)
Put funds aside
Business owners are sometimes placed under unnecessary financial stress because they haven’t paid / put money aside for:
- Their taxes or their business taxes
- Employees’ superannuation
- Employees’ PAYG Withholding
- The Goods and Services Tax (GST)
- Payroll Tax
- Fringe Benefits Tax (FBT) liabilities
Ensure you have a current will
All sole company directors or shareholders should ensure they have a current will. If a sole company director dies without a will, it will leave the company without a properly authorised person to immediately manage the company. It is important for a will to appoint an executor who can then appoint a new director to the company. The new director is then authorised to make management decisions and act for the company until the shares are transferred to its beneficiaries.
Questions to ask when setting up a firm if you have employees:
- Have you prepared commencement & separation procedures?
- Are you set up for Single Touch Payroll?
- Are you managing your employees’ super? Do you offer choice of fund and use a default fund when employees don’t provide declarations?
- Are you remitting your employees’ PAYGW (on your BAS)?
- Do you have workers compensation insurance?
- Do you provide fringe benefits?
- Have you put money aside for Employee Leave Entitlements (they may need to be paid out at short notice)?
- Are you liable for Payroll Tax?
Business insurance can protect the business owner, its people, its assets and the people it conducts business with from the risks faced operating a business. Types of business insurance can include, but is not limited to the following:
- Professional Indemnity — Covers the cost of legal action in the event a client suffers a loss after following your professional advice (compulsory for insurable legal practitioners as per s311 of Legal Profession Act 2006).
- Public Liability — Helps protect you and your business against the financial risk of being liable for negligence (e.g. a client injures themselves while visiting your office).
- General Insurance — Covers the business’ assets against loss or damage.
- Workers Compensation — Covers employees against injury at work, and on their way to and from work or work related events. Principals in the practice may not be covered by these policies.
- Business Interruption — Covers the loss resulting from an inability to trade.
- Management Liability — Helps protect the business in the event a manager or Partner conducts illegal or unethical practices.
- Key Person — Protects the business in the event a ‘key-person’ such as a Partner dies, is unable to work again, or suffers a serious trauma.
- Income Protection — Personal insurance which replaces income lost through an inability to work due to injury or sickness of the insured person.
- Practice Form - Establishment of a law practice in the ACT
- Trust Account Form - Opening a General Trust Account
- Trust Account Form - Authorise or Terminate Signatories
- Practice Form - Establishment of and/or any change to an Incorporated Legal Practice in the ACT
- Practice Form - Intention to practice in a Multi-Disciplinary Partnership