Tax and starting your own business or startup
What you need to consider before your start
You’ve got a dream for a new business or startup and a vision of exactly what success looks like for you. You’ll work harder than you ever have before to reach that dream and it will feel like your “to do” list only ever grows.
Regardless of what type of business you are planning – be it an online business, a home-based business, or a start-up with grand plans for expansion, it’s easy to be swept up in the excitement of the early days, while neglecting some of the less compelling factors that are essential to success like:
- what business structure should I use?
- what are the tax implications of the structure I choose?
- what protection should I put in place to make sure that my success and wealth isn’t taken away from me?
- how many people will be involved in the business?
- how many people will have an ownership interest?
- what will the business be doing and how exposed is it to potential claims from creditors or for other legal reasons?
- how much income is likely to be earned from the business?
- what is the planned growth of the business?
- what is my exit strategy?
- what source of financing will I be using and what guarantees or security will need to be given and by whom?
- will I have employees for whom I will need to pay PAYG, superannuation and workers’ compensation insurance?
So, don’t rush past these issues and questions. Most entrepreneurs and business people are surprised to find that the protections they need are affordable, even for solo entrepreneurs and small businesses and don’t take long to put in place.
Furthermore, the best time to get your business structured in the most tax effective way and protect your assets is right at the start. You’ll be glad you did.
Choosing the right business structure
Deciding how to structure your new business is one of the most important decisions you will make when starting out. There are a range of options, each with different tax and risk consequences, so it’s important to make the right choice to suit your circumstances.
It’s also critical to set up the structure correctly from the start with the right legal documentation.
We are experienced in implementing tax effective business structures while also protecting your assets.
We can advise you on the best structure for your business and help you to put it in place. We provide company incorporation services, family trust deeds, unit trust deeds and partnership agreements.
Check out our Free Guide “Choosing the right structure for your small business” which explains the tax issues, costs, and pros and cons of each structure.
Up and running
Once you have established the business structure, we can advise you on and help you to manage the following:
You will need to apply for:
- An Australian Business Number (ABN)
- A Tax File Number (TFN)
- Registration for goods and services tax (GST), subject to certain threshold requirements
- Choosing whether you account for GST on a cash or accruals basis and whether you report monthly or quarterly in your Business Activity Statement (BAS)
- If you operate through a company, register for Pay as you go instalments (paying tax as you go for your company)
Tax deductible capital costs
There are several costs that are tax deductible when you set up a business, including several incentives to help small businesses, but these will vary depending on your circumstances.
A capital cost is incurred where you purchase an asset that allows you to produce income.
It could take the form of buying equipment, but it could also be the cost of creating an e-commerce platform or website. Such costs are not usually tax deductible, unless they can be depreciated over several years, or if you qualify for the simple depreciation rules for small business.
For instance, if your business has a turnover of less than $50 million you can instantly write off assets costing less than $30,000 each which means an instant boost to your cash flow. But this is only until 30 June 2020 after which the instant write-off reduces to assets costing $1,000 or less.
Tax deductible fees and other costs
You can also claim the following:
- lawyer and accountant fees for professional advice on starting a new business;
- government fees paid in the formation of the business structure, e.g. ASIC;
- borrowing fees and other costs associated with setting up the business structure, aside from government fees, can be claimed as a tax deduction over a five-year period.
If your business meets certain tests and the start-up and the running costs are higher than your income, the loss may be deductible against other income you earned in the financial year.
Providing a service?
Are you running a personal service business (PSB), or earning personal service income (PSI), or both?
These attract different tax rules and it’s essential that you know which rules apply to you but identifying your PSI/PSB status accurately can be complex, so you need professional advice about whether this applies to you and if so, what the consequences are.
If you are hiring staff you will be responsible for meeting several obligations, such as:
- withholding taxes from wages and reporting and paying these amounts to the ATO;
- paying superannuation for eligible employees (including contractors in some circumstances);
- registering, reporting and paying fringe benefits tax (FBT) if you provide your employees with fringe benefits, (e.g. car, travel, or meal expenses) that are paid as part of, or in addition to, their wages.
- taking out workers’ compensation insurance and paying insurance premiums under the relevant State law.
Want to know more or need assistance setting up your new business?
There are naturally many other factors to consider when starting your own business, but we can help you to build a sustainable enterprise by taking care of those less exciting but critical elements, such as tax, asset protection and registrations.
This will free up your time to focus on running your business and future plans.
We can advise you on the best structure for your business and help you to put it in place.
Contact us today on 1800 MTL TAX (1800 685 829) or email us at firstname.lastname@example.org for assistance in choosing and setting up your business structure the right way.
Disclaimer: The information on this page is for general information purposes only and is not specific to any particular person or situation. There are many factors that may affect your particular circumstances. We advise that you contact Mathews Tax Lawyers before making any decisions.