Starting a new business can be a very exciting time. It can also be overwhelming. After working with literally hundreds of small businesses and startups over the last 10 years, we’ve created the 27 point checklist below to make sure you’ve covered all the basics before you make the leap to start your own business.
Starting a Business
1. Are you in business, or are your activities just a hobby?
Generally, if you are in business you:
- pay tax on your income, and
- can claim a deduction for business expenses.
If your activities are a hobby you:
- don’t pay tax on money you earn, and
- can’t claim a deduction for expenses. If you want some more information, check out: The ATO website, have a read through Tax basics for small business (NAT 1908).
2. Which legal structure is best for your business?
Sole traders, partnerships, companies and trusts have different legal obligations and are taxed differently. Make sure you talk to your tax adviser to get the right one.
3. Do you need a tax file number?
Sole traders use their individual tax file number for their business. Partnerships, companies and trusts need a separate tax file number. Companies, partnerships and trusts can apply at www.abr.gov.au
4. Do you need an Australian business number (ABN)?
It is not compulsory to have an ABN, but your business will need an ABN to:
- Register for goods and services tax (GST) and other business tax registrations
- Deal with other businesses, and
- Avoid having amounts withheld from payments.
Apply at www.abr.gov.au.
5. Are you running your business at or from your home?
Running a business at or from your home may affect:
- What expenses you can claim, and
- Whether you have to pay capital gains tax when you sell your home.
6. Are you a contractor or consultant?
If the income of your business is mainly a result of your personal efforts or skills:
- It may be treated as your personal income for tax purposes
- You may not be able to claim certain deductions, and
- If you operate as a partnership, company or trust, you may have to withhold amounts from the income.
7. Where can you find other information about starting a business?
www.business.gov.au is a whole-of-government service providing essential government information on planning, starting and running a business, including licensing, employment and grants.
Business Enterprise Centres in some regions can assist new business operators. Some state governments also run Business Development Centres which can help you when starting out. Visit www.business.gov.au
Registering for goods and services tax (GST)
8. How does GST work?
If you are registered or required to be registered for GST you:
- Have to pay one-eleventh of the price of your taxable sales to the Tax Office, and
- Can claim a credit for the GST included in the price of most business purchases.
9. Do you need to register for GST?
You must register for GST if:
- Your business expects annual sales of $50,000 or more, or
- You are a taxi operator or hire car operator.
10. What do you have to show on a tax invoice?
If you are registered for GST you have to show certain details on a tax invoice. If you are not registered for GST you cannot issue tax invoices.
Check out our Tax Invoice Requirement article on what items you need to show on your Tax Invoice.
Setting up your record keeping
11. What records do you have to keep, and for how long?
The tax law requires you to keep records for five years. These include records relating to:
- Sales and purchases
- Payments to employees, and
- Payments to other businesses.
Keeping good records also makes it easier to manage your business. If you are unsure, talk to your tax adviser.
12. Can you keep your records electronically?
Keeping records electronically improves accuracy and may save you time. Some of our favourites are Xero, MYOB and Quickbooks Online (Intuit). The Tax Office also has free electronic record keeping software called e Record.
13. Do you need a bookkeeper?
Bookkeepers can’t give tax advice, but they can manage your records. Eligible bookkeepers can also prepare and lodge your activity statements. It’s a good idea to get a bookkeeper to set up your record keeping system.
14. How can you manage your cash flow?
Managing your cash flow is critical to managing your business. Good cash flow management will help you to pay your bills on time, including your tax bills. If you want to see what the ATO has to say about this, head over to their website and check out: Record keeping for small business (NAT 3029) – Chapter 3 – A basic paper record keeping system – Managing your cash flow
If you pay employees or other businesses
15. Do you have to withhold amounts from payments to employees, directors or other businesses?
If you pay employees, directors or other businesses, you have to be registered for pay as you go (PAYG) withholding and send withheld amounts to the Tax Office.
You report and pay these amounts using your activity statement. You can register for PAYG on your ABN application form.
16. Are your workers employees or contractors?
You treat employees differently from contractors for PAYG withholding, fringe benefits tax, and superannuation purposes. It’s important that you distinguish the difference to avoid large penalties down the track. If you are uncertain, there is an awesome tool on the ATO website called the Employee v Contractor Decision tool.
17. What superannuation support must you provide for employees?
You have to pay superannuation guarantee for most employees and certain contractors. If you don’t, you will incur extra costs. Superannuation guarantee – a guide for employers (NAT 1987)
Eligible employees can choose which superannuation fund they want their superannuation contributions paid into. Choice of superannuation fund – guide for employers (NAT 13185)
19. Do you know about salary sacrifice?
Your employees may want to pay (sacrifice) part of their salary or wages into additional superannuation or other benefits. If this is new to you, please check out the ATO Guide: Salary sacrifice arrangements for employees (NAT 7424)
20. Do you know about fringe benefits tax?
If you provide non-cash benefits to your employees, such as use of a car, you may have to pay fringe benefits tax (FBT) and lodge an annual FBT return.
21. When do you withhold amounts from payments to other businesses?
Currently you have to withhold 46.5% of payments to any business that doesn’t quote a valid Australian business number (ABN) on a tax invoice or other document, or provide a statement giving a valid reason for not quoting an ABN. You report and pay the amount withheld using your activity statement.
To check details of suppliers with a valid ABN, visit the Australian Business register at www.abr.gov.au
How to report and pay tax
22. Do you have to lodge activity statements?
Businesses report their GST and other taxes on an activity statement. Most businesses must send an activity statement and any payment to the Tax Office every three months. Some smaller businesses lodge and pay only once a year and larger businesses may have to lodge and pay every month. You can lodge and pay online. Tax basics for small business (NAT 1908) – Chapter 11 – Reporting and paying tax – Activity statements
PAYG withholding for small business (NAT 8075) – Chapter 5 – Report and pay withheld amounts to the Tax Office. See www.ato.gov.au/onlineservices
23. How do you lodge your activity statement online?
The Business Portal is a secure part of ato.gov.au which allows you to:
- lodge, revise, view and print activity statements
- update registration details
- check business tax accounts and request refunds and transfers of credit accounts
- exchange secure messages with the Tax Office, and more. For more information go to www.ato.gov.au/onlineservices
24. Do you have to lodge an income tax return?
You have to lodge an income tax return for each year you are in business – even if you don’t make a profit or have any tax to pay. To learn about income tax and deductions for small business check out the ATO Publication: (NAT 10710)
25. What are the due dates for lodging activity statements and tax returns and paying tax?
You must lodge and pay by the due date unless you have made other arrangements with the Tax Office. If you do not lodge your activity statement and income tax returns by the due date, you may incur penalty and interest charges. The due date for lodging your activity statement is printed on your activity statement. Income tax returns are generally due by 31 October each year. Tax basics for small business (NAT 1908).
You will need to phone the ATO on 13 28 66 if you are having difficulty paying your tax bills on time.
26. Will you be able to pay your first income tax bill?
You generally don’t pay PAYG instalments of your income tax until after you’ve lodged your first business income tax return.
This means you may need to put money aside to pay your total income tax liability for your first year in business. Tax basics for small business (NAT 1908) – Chapter 12 – Your business journey – Are your budgeting processes helping you pay your bills and tax on time?
Selling or ceasing your business
27. What if you don’t go ahead with your business, or cease trading?
If you cease carrying on a business, or change the legal structure of your business, you may need to:
- Cancel your ABN and other registrations
- Make certain GST adjustments on your final activity statement, and
- Lodge final tax returns.
You must apply to cancel your GST registration within 21 days of ceasing to carry on an enterprise. Check out the ATO Publication: Tax basics for small business (NAT 1908) – Chapter 12 – Your business journey – What if you stop carrying on your business?
Check whether your state or territory government has any special requirements.
The easiest way to get more information is to visit:
- www.ato.gov.au to download publications, rulings and other general tax information for small businesses
- www.abr.gov.au to apply for a tax file number (except for individuals) and ABN, and register for GST and PAYG withholding
- www.ato.gov.au/onlineservices to find out about our range of online services, including the Business Portal
business.gov.au for easy access to a range of business information, services and transactions with government.
- There are links to Tax Office applications to register for an ABN and GST, or to apply for a tax file number.