Top tax tips for starting your own business

Tips for starting and owning your own business

There are over 2 million small businesses in Australia. If you’re thinking of joining them, what do you need to consider for tax purposes?

Incurring costs before the business starts

It’s quite common to incur costs relating to a proposed business even before you start trading. Certain costs that you incur can be claimed even before the business starts.

These can be claimed by whoever incurs them, even if the business ends up in a different entity (you incur a cost personally but end up running the business through a company).

Examples of what could be claimable include:

  • Payments to accountants and lawyers for structuring advice, setting up entities, due diligence and business plans (deductible even if the business doesn’t go ahead)
  • Government fees and charges relating to setting up an entity (eg stamp duty)

Incurring costs when the business is under way

As a general rule, any cost that you incur in earning income in your business can be deducted for tax purposes. This includes everything from the cost of the materials you use, the staff you hire, the rent on your premises and the money you spend on marketing.

What registrations do I need?

Tax File Number
If you’re operating as a sole trader, you will simply use your own TFN.

If you’re creating another entity, such as a trust, partnership or company, that entity will need its own TFN. You can get one via the Australian Business Register (ABR) website (www.abr.gov.au).

Australian Business Number
An ABN is essential for any Australian business since it is used in numerous other business interactions, with customers, suppliers and other government agencies. You can get an ABN through the ABR website.

Australian Company Number

You’ll only need this if you are planning to run your business through a company. You can apply for one through the Australian Securities and Investments Commission website (asic.gov.au).

Pay As You Go Withholding (PAYG)
You’ll need to register for PAYG withholding if you intend to employ people who will be paid wages or salary. You’ll need to deduct tax from each wage or salary payment and pay it to the ATO through the PAYG system. You’ll need to keep records of who you paid wages to, how much and when.

You can register through the ABR website.

Goods and Services Tax
Your business will need to register for GST once your annual turnover is $75,000 or more. You can register for GST online via the ABR website.

Superannuation

You must pay superannuation contributions on behalf of each employee, at a rate of 9.5% of the amount they earn from their ordinary hours of work. Payments must be made on behalf of all employees (including temporary or casual staff) who are over 18 and earn more than $450 (before tax) per month.

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