Tax Tips for Starting Up, Maintaining Growth & Closing Shop
If you’re trying to figure out how to start a business, whether that’s starting an online business or something of the bricks and mortar kind, it pays to know how to get set for small business tax and organising your structure. Likewise if you’re closing up shop.
Our focus here is on small and medium enterprises (SMEs) only. As always, do your own research – your accountant, friendly competitors and the ATO can be great sources of information.
How to start a business
While you might be champing at the bit to get stuck into the doing of what you do, the question of what do you need to start a business begins here – by making decisions about your financial foundations.
Deciding on a business structure
Structuring your business for effective tax and asset protection helps you set yourself up to achieve your financial objectives, both personal and business.
The implications of incorrect structures can have serious financial consequences. So in addition to doing your own research, it’s highly recommended to talk to an accountant.
Three business structures
Business can typically be set up in the following ways:
1. Individual sole trader
– ABN registered to an individual with all obligations of the business falling on that individual only
– e.g. a person operating a coffee stall for weekend football matches
– Where a person or other entity holds property for the benefit of beneficiaries
– One of the more complex and scrutinised structures from a tax perspective
– Also known as a ‘transparent’ entity
– Considered to be an independent entity existing separately to its shareholders / owners
– Usually referred to as a ‘separate entity’
On Trusts and Companies
These have many sub-categories, and are usually used in various combinations. If you’re a doctor for example, and plan to run a medical centre, your ideal structure could be a family trust or company.
Choose and register a business name
A business name is something to choose wisely. It’s important not to rush it and to do the checks to ensure no-one else has it – you don’t want to get wedded to a name already out there! Before making the decision, share your ideas and talk to trusted peers. If it’s feeling right and sounding right, go for it. If not, head back to the list-making.
> Read more about the steps to register your business name
Getting your ABN and other tax registrations
Depending on your business structure and anticipated annual earnings, in addition to getting an Australian Business Number (ABN) you may also need to register for GST, FBT and more.
For example if you have employees, you may need to register for payroll tax and workers compensation. Or if you’re setting up a Company and/or Trust, there could be other obligations to consider. When in doubt, talk to your accountant.
Handy fact: ABNs can take longer to sort out if you’ve previously held an ABN.
Find the right bank account for you
It shouldn’t take long to open your account, but before you can do so, you will need to provide your business’ TFN or ABN.
Be sure to take a look at the types of accounts that will work for your situation. For example, do you prefer low fees and easy access to your money? Or if you’re on the go for most of the day, you might want to run your money using an app. Plus there’s interest to be earned.
> Read more about comparing small business bank accounts
Set up your accounting system
You might land on one or even two systems to get your business humming. Most off-the-shelf cloud computing accounting systems for small and medium enterprises cater for tax reporting obligations, which is great. But if your need is more complex, like Single Touch Payroll, BAS and Income Tax Reports, dig deeper to ensure your new system serves all your requirements.
Ongoing business and growth
So you’ve got the foundations in place and business is ticking along. When it comes to your ongoing small business tax needs, it’s all about structure, goals and being compliant. Let’s take a look.
Most businesses outsource the management of the bulk of their tax obligations to external providers like accountants and payroll specialists. They can help you deal with employee administration of wages and salaries, and crunch your numbers at tax time – whether they step in annually, quarterly, bi-annually, or as needs.
If you prefer to DIY your income tax, or even if you work with an expert, the ATO’s info on income and deductions for business may come in handy.
Goods and Services Tax (GST) was introduced on 1 July 2000 via the legislation – A New Tax System (Goods and Services Tax) Act 1999.
When to register for GST
GST registration isn’t required until your business has a ‘GST turnover’ (gross income minus GST) of AUD$75,000 or more.
· There are additional compliance obligations associated with registering, such as doing your Business Activity Statement (BAS). So you’ll want to be set up for this before you register with software like Xero or an accountant to help you.
· Subject to circumstances, businesses with a new ABN or ACN can opt for annual rather than quarterly or monthly lodgement (taking a huge load off the admin!).
> Read more about registering for GST
How to understand GST rates
GST rates are based on the good or service being provided – so a business could have different GST rates for the goods and services they provide.
Good to know is that some business accounting software comes with a pre-set table of rates for different items, and providers allow you to set up GST rate tables for items purchased and sold by your business. Your accountant can most likely help in this regard also.
You typically only need to register and fulfil obligations for payroll tax when annual salary/wage thresholds are met. These requirements are usually overseen by the local office of state revenue, rather than at a federal level.
> Read more about payroll tax rates and thresholds.
Workers compensation is usually maintained by the local state authority rather than at the federal level.
> Read more about understanding workers compensation
It’s vitally important to understand your super guarantee obligations, and super in general. There’s plenty of information out there online for you to research, but when it comes to the administering of super for employees, this should ideally be set up via Single Touch Payroll reporting, unless you have a Super Guarantee Contribution shortfall statement.
> Read more about calculating the super guarantee charge for employees
Fringe Benefits Tax (FBT) generally becomes a consideration when you make payments (apart from salary and wages) to employees, yourself as the business owner, or to any other business owners or directors.
It equally comes into play where any other ‘benefits’ are provided, such as when a car is made available for someone’s use outside work hours (or for personal use).
> Read more about fringe benefits tax for employers
Ongoing evaluation of tax considerations as you run your business and enter various agreements is the recommended way to keep on top of your obligations. You can DIY if feeling confident, or you can enlist the services of an expert, like an accountant.
> Read more about understanding tax requirements
Closing up shop
Should the time come to bid your business farewell, be sure to wrap up some of those key foundations you put in place at the beginning. Note that not all are mandatory to deregister, however ongoing paperwork may be required, even if no business is being conducted and the business is inactive.
Lodge final returns
Make sure all tax returns clearly state that the business will be lodging the return for a final time. Usually your accountant will lodge these returns as ‘final returns’.
> Read more about selling or closing down a business
Deregister or keep business name
You may wish to hold onto your business name just in case. If so, you’ll need to renew it on an ongoing basis.
> Read more about closing a small business
Deregister or keep ABN
If you keep your ABN, ongoing reporting obligations will be need to be met.
> Read more about cancelling your ABN
Deregister or keep all tax registrations
If you keep all other tax registrations, ongoing reporting obligations will be need to be met. However ‘final returns’ won’t be required for those registrations you intend to continue – for example, where you start a new business venture after shutting an old one down. (This needs to be evaluated on a case-by-case basis.)
> Read more about selling or closing down a business
Tyro provides this article for general information and educational purposes and does not take into account the financial situation or needs of any reader. The information provided must not be relied upon as financial product advice. Taxation considerations are general and based on present taxation laws and may be subject to change. You should seek independent, professional tax advice before making any decision based on this information.
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