Starting a business

Starting a business

When you start a business, there are tax and super responsibilities you need to be aware of, including:

  • the tax implications of your business structure
  • whether you’re entitled to an ABN
  • registering your business
  • records you need to keep
  • deductions you can claim.

As you get your business up and running, there are a few things you may need to consider, including:

  • when your tax and other obligations start – this will depend on whether you are in business yet
  • the implications of the structure you choose – tax and legal
  • the location of your business (such as working from home).

There are four commonly used business structures in Australia:

  • Sole trader
  • Partnership
  • Company
  • Trust

It’s important to understand the responsibilities of each structure because the structure you choose may affect:

  • the tax you’re liable to pay
  • asset protection
  • You’re not locked into any structure and you can change the structure as your business changes or grows.

Register your business name

Step 1 – Log in to ASIC Connect and select the ‘Licences and Registrations’ tab at the top of the page

If you don’t have an ASIC Connect account, you can register online.

If you’re logging in for the first time, make sure you say ‘No’, you don’t have a current business. You don’t need an ASIC key to register.

Step 2 – Select ‘Business name’ from the drop-down box

Select ‘business name’ from the drop-down box and select ‘Go’. Read the information and make sure you tick the boxes. Select ‘Get started’.

Step 3 – Enter your Australian Business Number (ABN)

You must have an Australian Business Number (ABN) or have applied for an ABN to register a business name. Select the relevant option, enter your ABN, and select ‘Next’. You must enter your ABN without any spaces.

Step 4 – Enter the proposed business name

Enter the proposed business name exactly as you would like it to appear on our register. Business names are case sensitive.

Step 5 – Select the registration period

You can register a business for one year or three years. After this period, it must be renewed.

Step 6 – Enter the business name holder’s details.

Enter the proposed business name holder details (e.g. the holder’s date of birth)

Step 7 – Enter the proposed business name’s addresses

Enter the addresses of the proposed business name.

Step 8 – Confirm the eligibility to hold the business name.

To hold a business name, the holder cannot be disqualified or convicted of criminal offences outlined in the Business Names Registration Act 2011.

Step 9 – Review your application

Review your application; make sure your business name is spelt correctly. Complete the declarations and confirm you’re authorised to submit the application.

Step 10 – Make payment and confirm your transaction.

You can pay by credit card, BPAY, or request an invoice. If you don’t pay within 10 days, your application will be cancelled, and you will need to reapply.

Once you’ve made payment, you’ll see a confirmation screen. Once payment has been made, your business name should be registered within 48 hours.

Is it a business or hobby?

If you are currently undertaking an activity or intend to start a business, it is important to know whether your activity is a business or hobby. Unlike a hobby, a business has reporting requirements such as declaring income earned and claiming expenses. It is important to understand the differences between a hobby and a business for tax and other purposes. Your tax and other obligations start once you are in business. There is no single factor that determines if you are in business, but some of the factors you need to consider include:

  • You’ve decided to start a business and have done something about it to operate in a businesslike manner, such as registered a business name, or obtained an ABN.
  • You intend to make a profit – or genuinely believe you will make a profit from the activity – even if you are unlikely to do so in the short term.
  • You repeat similar types of activities.
  • The size or scale of your activity is consistent with other businesses in your industry.
  • Your activity is planned, organised and carried out in a businesslike manner. This may include
    • keeping business records and account books
    • having a separate business bank account
    • operating from business premises
    • having licenses or qualifications
    • having a registered business name.

If you aren’t in business yet, it is important to keep these factors in mind as your activities change or grow, so you’ll know when you need to register for tax and other business responsibilities.

Hobby

If you determine your activities are a hobby then you do not have any additional tax or reporting obligations. If your activities are a hobby but you supply goods or services to businesses, they may request your ABN when they pay you. Because you do not have an ABN and your activity is done as a hobby, you should use the ‘Statement by a supplier’ form. This will avoid the business you are supplying having to withhold an amount from their payment to you.

Prepare for tax

Tax returns cover the financial year from 1 July to 30 June. If you’re lodging your own tax return it is due by 31 October.

Lodging with myTax

MyTax is the quick, easy, safe and secure way to lodge your tax return online. It’s web-based, so you don’t need to download anything. You can lodge on a range of devices – computer, smartphone or tablet – just make sure to lodge by the 31 October deadline.

To lodge online you need a myGov account linked to the ATO. MyTax is available to all individuals completing their own return (including sole traders).

MyTax is accessed through myGov. Clicking this link will take you away from ato.gov.au. Once logged in, follow these menu options: Tax > Lodgements > Income tax

Deadlines

You need to lodge your tax return by the 31 October.

If you are completing your own tax return and are unable to lodge by 31 October, contact us as soon as possible.

Most registered agents have special lodgment schedules and can lodge returns for clients later than the 31 October deadline. If you are using a registered agent, ensure you contact them before 31 October.

If you’re having difficulties meeting your tax obligations, contact us as soon as possible.

Even if the deadline has passed, it is important to lodge as soon as you can.

If you expect a tax bill, don’t delay lodging. If you’re finding it hard to pay on time, it’s important to contact us early so the ATO can work with you to make a payment plan tailored to your circumstances.

Employee or contractor

The difference between an employee and independent contractor is based on many different factors. No single factor determines whether a person is an employee or contractor. Instead, courts will look at each case and decide based on the totality of the relationship between the parties when determining the status of a person’s employment. There are some common factors that may contribute to determining whether a person is an employee or independent contractor.

In most cases, independent contractors:

  • work for themselves and are their own boss
  • are free to accept or refuse work
  • control their own working times
  • provide their own tools and equipment.

In contrast, employees:

  • work in someone else’s business
  • are subject to controls on how, where and when their work is performed
  • are paid a wage
  • receive employee entitlements, such as sick and annual leave.

Employee/contractor decision tool

https://www.ato.gov.au/Calculators-and-tools/Host/?anchor=ECDTSGET&anchor=ECDTSGET/questions/ECDT#ECDTSGET/questions/ECDT

Business plan

A business plan is a documented set of business goals, objectives, target market information and financial forecasts that you are aiming to achieve over a certain period of time. It is important to prepare a business plan when starting or growing your business and review it regularly to keep it up to date.

When writing your business plan, read the following useful information from www.business.gov.au :

A good business plan can help you secure finance, define the direction of your business and create strategies to achieve your goals. Effective business planning can be the key to your success. A business plan can help you secure finance, prioritise your efforts and evaluate opportunities.

It may initially seem like a lot of work; however a well-prepared business plan can save you time and money in the long run. There are no rules about what your plan should cover or the level of detail. In general, plans need to include information regarding:

  • business profile
  • vision, mission and goals
  • market research
  • operational strategy
  • products and/or services
  • marketing plan
  • financial strategy.

Marketing Plan

A marketing plan is a comprehensive document or blueprint that outlines the advertising and marketing efforts for the coming year. It describes business activities involved in accomplishing specific marketing objectives within a set time frame.

A marketing plan also includes a description of the current marketing position of a business, a discussion of the target market and a description of the marketing mix that a business will use to achieve their marketing goals. A marketing plan has a formal structure but can be used as a formal or informal document which makes it very flexible.

It contains some historical data, future predictions, and methods or strategies to achieve the marketing objectives. Marketing plans start with the identification of customer needs through a market research and how the business can satisfy these needs while generating an acceptable return. This includes processes such as market situation analysis, action programs, budgets, sales forecasts, strategies and projected financial statements.

A marketing plan can also be described as a technique that helps a business to decide on the best use of its resources to achieve corporate objectives. It can also contain a full analysis of the strengths and weaknesses of a company, its organization and its products.

The marketing plan shows the step or actions that will be utilized in order to achieve the plan goals. For example, a marketing plan may include a strategy to increase the business’s market share by fifteen percent.

The marketing plan would then outline the objectives that need to be achieved in order to reach the fifteen percent increase in the business market share. The marketing plan can be used to describe the methods of applying a company’s marketing resources to fulfil marketing objectives.

Marketing planning segments the markets, identifies the market position, forecast the market size, and plans a viable market share within each market segment. Marketing planning can also be used to prepare a detailed case for introducing a new product, revamping current marketing strategies for an existing product or put together a company marketing plan to be included in the company corporate or business plan.

Superannuation

What is superannuation?

Superannuation in Australia are the arrangements put in place by the Government of Australia to encourage people in Australia to accumulate funds to provide them with an income stream when they retire.

Super is important for you, because the more you save, the more money you will have for your retirement.

You can only withdraw your super money in certain circumstances – for example, when you retire or turn 65 years old.

How much super do I have to pay my employees?

The minimum super you must pay each quarter for each eligible employee is called the super guarantee (SG). Currently the SG is 9.5% of their ordinary time earnings (OTE).

OTE is usually the amount your employee earns for their ordinary hours of work. It includes things like commissions, shift loadings and allowances, but not overtime payments.

To work out what you must pay, multiply your employee’s OTE for the quarter by the SG rate (or the percentage you use if you’re paying super at a higher rate). For employees who started in the quarter, their earnings are calculated from the day they started.

If you make super contributions under an award, check that they are enough to satisfy both the award and the SG.

You can use our Superannuation guarantee (SG) contributions calculator to work out how much super you must contribute for your eligible workers.

Who don’t I have to pay super for?

If you’re a non-resident employer, you don’t have to pay SG for resident employees for work they do outside Australia.

Generally, if you don’t pay an employee $450 or more (before tax) in a calendar month and they are aged 18 years or more, you don’t have to pay super guarantee (SG) on top of their wages.

Generally you do not pay super for employee’s under the age of 18 years being paid $450 or more that work less than 30 hours in a week.  (If they work more than 30 hours in a week then you need to pay super.

 

This applied regardless of whether you are casual, part time or full time.

Medicare levy and Medicare levy surcharge

What are they?

A Medicare levy is the progressive income tax levy which partly finances Medicare, Australia’s national healthcare scheme. Taxpayers pay the Medicare levy which is 2% of their taxable income to fund the Medicare system.

In addition to the Medicare levy, you may also have to pay the Medicare levy surcharge (MLS) if you don’t have an appropriate level of private patient hospital cover.

The Medicare Levy Surcharge is an extra 1% to 1.5% levy paid by Australian taxpayers who don’t have Private Hospital Cover and are considered by the Government to be high income earners. Medicare gives Australian residents access to health care. It is partly funded by the Medicare levy, which is 2% of your taxable income.

Who does it apply to?

Medicare levy applies to everyone except if you:

  • meet certain medical requirements
  • are a foreign resident
  • are not entitled to Medicare benefits.

The Medicare levy surcharge (MLS) is levied on Australian taxpayers who do not have an appropriate level of private hospital insurance and who earn above a certain income. The base income threshold (under which you are not liable to pay the MLS) is $90,000 for singles and $180,000 for families. If you earn under that, then you’re not subject to the MLS.

Medicare Levy exemption certificate.

You can claim a full exemption for any period for which you have a certificate from the Medicare Levy Exemption Certification Unit of Medicare Australia showing you were not entitled to Medicare benefits because you were a temporary resident for Medicare purposes and either:

you did not have any dependants for that period, or

all your dependents were in an exemption category for that period.

A letter from Medicare is not sufficient. For more information on how to apply for an exemption certificate as a temporary resident, contact Medicare on 1300 300 271 or go to humanservices.gov.au

Personal Services Income

What is a Personal Services Income?

You earn PSI when more than 50% of the income you receive from a contract is for your skills, knowledge, expertise or efforts.

You don’t earn PSI if:

  • less than 50% of your income from a contract is for your skills, knowledge, expertise or efforts
  • you receive income from selling or supplying finished goods, even if you made these goods
  • you receive income from an income-producing asset, such as renting a vehicle or piece of machinery
  • your income comes from licencing your intellectual property, such as a patent.

Personal services income (PSI) is income produced mainly from your personal skills or efforts as an individual. You can receive PSI in almost any industry, trade or profession. … Income is classified as PSI when more than 50% of the amount you received for a contract was for your labour, skills or expertise.

The characteristics of PSI are:

  • PSI relates more to the supply of services rather than the supply of goods.
  • PSI tends to require greater dependence on skill and judgement.
  • PSI is more likely to arise if the business has minimal assets and few employees.

Examples of PSI include:

  • Income of a professional practitioner in a sole practice;
  • Income payable under a contract which is wholly or principally for the labour or services of a person;
  • Income derived by a professional sportsperson or entertainer from the exercise of professional skills; and,
  • Income derived by consultants from the exercise of personal expertise.

When working out if the PSI rules apply, you need to look at each contract or job to determine if you have received PSI. If you have received PSI (including if you’ve received it as a company, partnership or trust), you then need to work out if the PSI rules apply to that income.

Where a business is caught by the PSI rules there are severe tax limitations placed on that business.

Where a business receives more than 50 per cent of its income from a contract purely for the supply of labour, which depends on the skills or expertise of the contractor performing the work, then all of the income under that contract is classified as PSI.

Who does it apply to?

Only individual taxpayers can have PSI.  If PSI is channelled through a company, partnership or trust (i.e. a personal services entity or PSE ), it is still the individual’s personal services income for income tax purposes.

Fuel Tax Credits

What is  Fuel Tax Credits?

Fuel tax credits provide businesses with a credit for the fuel tax (excise or customs duty) that’s included in the price of fuel used in:

  • machinery
  • plant
  • equipment
  • heavy vehicles
  • light vehicles travelling off public roads or on private roads.

Who does it apply to?

It applies to everyone, but your business needs to be eligible to make a claim. This means you must be registered for Goods & Services Tax (GST) and fuel tax credits before you can make a claim.

How do you apply?

You can claim fuel tax credits on your business activity statement (BAS). But your business needs to be eligible to make a claim. This means you must be registered for Goods & Services Tax (GST) and fuel tax credits before you can make a claim.

What is needed to claim it?

Before you can make a claim you must have an eligible business, which means you must be registered for both goods and services tax (GST) and fuel tax credits.

You will need to keep a record of the litres of fuel used on a monthly basis.

Checklist: Everything you need for a successful Tax Day

Checklist: Everything you need for a successful Tax Day

It is quite common for people to forget the things they need when paying taxes. Managing all the documents and files before the Tax Day can be quite overwhelming- however, it is something you can’t avoid. We would love to help, so we created a simple Tax Day checklist, for making it easier on you.

Here is the checklist of the most common things you need for a successful Tax Day.

Income Report

The first thing you need is information about all your income throughout the year. If you are an employee in an organization, then you are supposed to get a PAYG Payment Summary form that will report your annual income. If you are a sole proprietor, you are required to collect all the information regarding the inflow and outflow of your business.

Interest or Dividends

If you are getting interests or dividends from any investment, you will need to show documents to prove it. This applies even if you have reinvested those distributions.  You must also report any sale of investments.  So, do not forget to take copies of it on the tax day.

Records of Expenses

This is the part where you show your expenses throughout the year. This is a very important part, as some expenses can reduce the total amount you need to pay on tax. It is very common for people to forget to mention a few of the expenses that result in overpayment of tax.

Here are a few tax deductions that you need to check off the checklist.

  • You can deduct tax from the contribution made to a superannuation plan.
  • If you have educational fees or student loan then do consider it for deduction. They are not always deductible but asking cant hurt.
  • Check for any charitable contribution that you have made and carry related documents.
  • If you pay interest on mortgages or for paying loans that are related to investments then make sure you keep records

To make tax return easy and convenient, try hiring an accountant from Plant and Associates. We can help you get through the hassles of a tax return. Just contact us and see the difference by yourself.

PAYG Variation

What Is a PAYG Variation?

A s221D PAYG Variation is used to vary or reduce the amount of tax withheld from your wages/salary. This application is valid for one financial year. If you apply in May or June, the variation will apply to the financial year starting from 1 July.

Who should apply for one?

Anybody can get one but the main purpose of one is to make sure that the amount withheld during the income year best meets your end-of-year tax liability.  This is typically applicable to individuals who have negatively geared investments or a lot of work-related deductions, resulting in high refunds at tax time.

How do you apply?

The e-variation is a transmittable form you need to lodge online over the internet. Your computer needs to meet the minimum system requirements to do this. If your computer meets the requirements then you download the PAYG withholding e-variation. Your Registered Tax Agent can lodge this form for you.

When do you apply?

The last date for lodgement is 30 April of the application year. It takes the ATO up to 28 days to process your application.

What is needed to apply?

You will need:

  • A computer that meets all the minimum system requirements.
  • Your details such as name, DOB, TFN, address and contact details
  • If your request is due to a negatively geared investment property:
    • Contract of Sale (page indicating contract date & purchase price)
    • Bank Letter of Offer (pages indicating amount of loan, interest rate & term)
    • Solicitor’s correspondence (letter provided by Solicitor at settlement detailing all costs, fees and disbursements)
    • Quantity Surveyors Report
  • Two (2) recent pay slips showing year to date gross and year to date tax instalment deductions (If your pay slips do not show YTD figures please provide a letter from your employer showing – last date paid, YTD taxable gross and YTD tax withheld) Your payslip also needs to show your employers name, ABN, your employee number, contact number for your employer and address of your employer

Copy of last tax return lodged – if completed by another accountant