The four structures pharmacy buyers choose — and what each one costs at exit

Trust, company, partnership or sole trader. For almost every other small business this is a tax question. For a pharmacy in Victoria it is a licensing question first — and only then a tax question. Get that order wrong and you will spend years unwinding a structure that was never permitted in the first place.

Start with the rule that overrides everything else

Under the Pharmacy Regulation Act 2010 (Vic), a person must not own or hold a proprietary interest in a pharmacy business unless they are a registered pharmacist, an eligible company, or a qualifying friendly society. The Victorian Pharmacy Authority’s current guidance is explicit about what that means in practice:

• An eligible company is one in which all directors and all shareholders are registered pharmacists.
• A proprietary interest means a legal or beneficial interest — held as a sole proprietor, partner, shareholder, director or trustee.
• Trusts are permitted, but only where the ultimate beneficial interests rest with eligible persons.
• A pharmacist or eligible company may not hold interests in more than five separate pharmacy businesses.
• Provisions that let a non-licensee control the supply of medicines, the layout, stock levels, or access business records are void and unenforceable.

The four structures that are actually available

1. Sole trader

You own the business personally. Simple, cheap, and the general 50% CGT discount is available on sale if you have held the asset more than twelve months. The cost is that every dollar of profit lands in your marginal tax bracket in the year it is earned, there is no way to smooth income across a family, and there is no liability separation between the business and everything else you own.

It suits a single pharmacist with one store, modest profit, and no immediate plan to bring anyone in. Most owners outgrow it.

2. Partnership of pharmacists

Two or more registered pharmacists (or eligible companies) hold the business jointly. Income flows through to the partners in their profit-sharing ratios and each partner accesses the 50% CGT discount on their share. It is the natural structure where two pharmacists genuinely go in together.

The risks are the ordinary partnership risks — joint and several liability, and the fact that a partnership dissolves when a partner leaves unless the agreement says otherwise. A written partnership agreement dealing with exit, valuation, deadlock and death is not optional.

3. Company owned by pharmacists

An eligible company holds the business. Profits are taxed at the company rate rather than your marginal rate, which is useful while you are paying down acquisition debt and retaining earnings. Liability is contained. Bringing in another pharmacist is a share transfer rather than a business restructure.

The catch appears at exit. A company does not get the general 50% CGT discount. If the company sells the business and makes a capital gain, the full gain is taxed at the company rate before anything reaches you, and getting the proceeds out to shareholders raises its own issues. Loans back to shareholders are caught by Division 7A and become deemed dividends if they are not on complying terms.

4. Unit trust with eligible unitholders

A unit trust holds the business, with units held by pharmacists or eligible companies and typically a corporate trustee. It combines flow-through taxation and access to the 50% CGT discount with a cleaner mechanism for admitting or retiring an owner — units transfer, the business does not move.

It is more expensive to establish and run, and the unitholder register must be watched permanently: a transfer that puts units into non-eligible hands is a compliance problem, not just a tax one.

Where the exit bill actually gets decided

The structure question feels like a tax-rate question while you are trading. It is really a capital gains question, and the amounts at stake at sale usually dwarf the annual difference.

Pharmacy sales are usually asset sales, not share sales

Buyers of pharmacies generally want the business and its goodwill, not your entity with its history. That matters because it means the gain is typically made inside whatever structure holds the business — so the character of that structure determines what concessions are available before a dollar reaches you.

The small business CGT concessions are the whole game

There are four: the 15-year exemption, the 50% active asset reduction, the retirement exemption and the small business roll-over. They can reduce a capital gain to nil. To use any of them you must first pass a gateway — either be a CGT small business entity with aggregated turnover under $2 million, or satisfy the maximum net asset value test.

The 15-year exemption is the best outcome available

If it applies, the entire capital gain is disregarded. The conditions are strict: continuous ownership of the asset for the 15 years ending just before the sale, and an individual (or, for a company or trust, a significant individual) who is 55 or older and disposing of the asset in connection with retirement — which requires at least a significant reduction in hours or a significant change in activities. Permanent incapacity removes the age condition.

Two practical consequences. First, restructuring can reset a 15-year clock, so a “tidy-up” in year thirteen can be an expensive tidy-up. Second, the significant individual does not have to be the same person for the whole fifteen years, which gives family successions more room than owners assume.

The retirement exemption is more flexible than its name suggests

Up to $500,000 per individual across their lifetime can be disregarded. If you are under 55 when you choose it, the exempt amount must go into superannuation; if you are over 55, no contribution is required. And despite the name, you do not have to retire — you need not end your employment, office holdings or business activities at all.

What we would actually do

1. Confirm eligibility before anything else. Map every legal and beneficial interest against the ownership rules. Do this before you sign a contract, not after the Authority asks.
2. Decide where the premises will sit. Almost never inside the trading entity. It contaminates the business sale and it counts toward your $6 million test wherever it sits.
3. Model the exit at the start. Run the sale you expect in ten to fifteen years through each candidate structure. The differences are usually six figures.
4. Track the $6 million test annually. One line in your year-end pack. It is the cheapest insurance in this list.
5. Document add-backs from day one. Normalised earnings are what a buyer’s financier lends against. Reconstructing five years of them retrospectively is how sale campaigns lose momentum.