Before You Start a Business

Tax, super and registration obligations you need to consider before you start a business.

Are you in business?

Before you register for an Australian business number (ABN), it is important you determine if you are in business and when your business starts.

Knowing if you’re in business helps you know what records you need to keep, and what obligations you have.

What to consider before starting a business

Understanding the road ahead and doing your research and planning is critical for your success.

The Guide to starting a business on business.gov.au helps you navigate these steps.

It’s also important to:

• know that you are ready to start a business
• talk to people with similar businesses, or a trusted business adviser
• speak with a registered tax professional
• contact your local industry association
• look at the ATO’s website and small business benchmarks to see how businesses perform in your industry
• research financial information for your business – how much will it cost to start your business, to be in business, and can you access grants or loans?
• decide which business structure is right for you as this determines the tax you will need to pay
• know what records you may need to keep and income and deductions you need to declare or claim, and from when this needs to happen
• know what registrations you need to have in place, and from when.

Getting up and running

• Registrations and insurance
• Business reporting, income returns and deductions
• Engaging with us online
• Hiring workers

Registrations and insurance

Once you have started a business, you need to meet specific business obligations. This includes any required registrations or business insurance.

You may need an Australian business number (ABN). This unique 11-digit number identifies your business or organisation to the government and community. An ABN has its own set of obligations.

You may also need to:

• register for goods and services tax (GST), which is a broad-based tax of 10% on most goods, services and other items sold or consumed in Australia
• register for pay as you go (PAYG) withholding and meet your super obligations for any employees you hire
• register for fringe benefits tax (FBT) when you are providing fringe benefits to your employees.

You can apply for an ABN and other key business registrations through the Business Registration Service.

You may also need business insurance and licences to protect your business. It’s important to understand the licences and permits you need to do certain activities and help protect your business and employees.

Business reporting, income returns and deductions

Income you receive from your business activities is assessable income and must be declared on your income tax return.

A tax return needs to be lodged for each sole trader, partnership, trust and company you are running.

Sole traders need to report all income, including business income, in their individual tax return.

You can claim a business tax deduction for most expenses you incur in carrying on your business, as long as they are directly related to earning your assessable income. If you are registered for GST, you will also need to lodge a business activity statement (BAS).

Engaging with us online

The ATO’s online services are quick, easy, tailored and secure. They let you manage most of your reporting and transactions with us at a time that’s convenient for you.

You can use:

• Online services for individuals and sole traders
• Online services for business for approved self-managed super fund (SMSF) auditors, businesses, and other organisations.

Hiring workers

If you’re thinking of hiring a worker, it’s important to understand your tax and super obligations as an employer.

Before you hire your first worker you need to:

• set up single touch payroll (STP) to meet your employer obligations
• register for PAYG withholding
• set up your business to pay superannuation contributions to your worker’s nominated fund
• register for FBT if you provide benefits in addition to wages
• see if you need to register for state and territory payroll tax
• use the ATO’s online services to manage your registrations and obligations.

Setting yourself up for success

• Cash flow management
• Record keeping
• Business banking
• Technology

Businesses that are operating well and meet their obligations usually have the same things in common.

They:

• have good cash flow management practices
• use technology to help run their business
• keep good records and have good accounting systems
• seek the advice of a registered tax professional or business adviser.

With accurate record keeping and digital tools, it’s easier to track, monitor and make improvements to your cash flow. It also makes it easier to report to the ATO and make payments.

Cash flow management

Managing your business cash flow and knowing the amount of money that goes in and out of your business – that is, income and expenses – allows you to make better business decisions.

It also makes it easier for your business to pay bills and other costs and meet your tax, GST, superannuation and employer obligations.

In your first year of business, you can meet your obligations by:

• making tax pre-payments into your tax account
• putting money aside for your expected tax bill
• voluntarily entering into PAYG instalments.

For help with understanding how to manage your business cash flow:

• attend the ATO’s free Budgeting for your commitments webinar
• ask your trusted business adviser or registered tax agent about the Cash Flow Coaching Kit.
• visit business.gov.au and learn about how to create a budget and how to improve your business’s financial position.

Record keeping

As a business, for tax purposes you must keep detailed records for all transactions related to your tax, GST and superannuation affairs as you start, run, sell, change or close your business.

Keeping accurate and complete records for all your business transactions will also help you manage your business and its cash flow.

Business banking

Understanding your business banking obligations is important. Different business structures have their own record keeping requirements.

• If you’re operating as a partnership, company or trust, you must have a separate bank account for tax purposes.
• If you’re operating as a sole trader, you do not have to open a separate business bank account, but it’s a great idea to do so and will save you time when working out what transactions are personal and business.

Further information about organising your finances can be found on business.gov.au.

Technology

The right digital tools will help you perform daily business activities and meet your tax, GST and super obligations. They also make it easy for you to engage with us when it is convenient to you.

Small businesses can use:

• Online services for individuals and sole traders
• Online services for business
• the ATO app – to access and manage your tax and super on the go
• eInvoicing – a fast, easy and secure way to automatically send and receive invoices through your software
• digital record keeping software systems – to track your income and expenses from the start of your business
• electronic payment systems – if you are making sales in your business, you will need to select a payment system. Your customers then pay for your goods or services electronically, making it easier for you to reconcile your expenses, including
  • tap-and-go (contactless) payments
  • credit and debit cards
  • EFTPOS
  • online payments
  • smart phone and tablet card processing.

Any payment software you use must not have any payment suppression tools.

Support for your business

The ATO is here to help you on your business journey. We offer a range of learning resources, tools and services to support your business.

• Tax time support for your business.
• Free webinars to improve your skills and knowledge to be successful in your business venture.
• Calculators and tools to help you run your business.
• A small business newsroom – subscribe and get the latest tax and super news delivered to your inbox.
• ATO app – to access and manage your tax and super on the go.
• Join the discussion online – follow us on social media for tips and updates or check out our ATO Community forumExternal Link to ask questions about tax and super.
• National Relay Service External Link – if you have difficulty hearing or speaking to people on the phone, you can contact us through the National Relay Service.
• National tax clinic program – if you’re experiencing difficulties and can’t access or afford professional advice or representation with your tax affairs, the tax clinic program may be able to help.
• Registered tax or BAS agents External Link– contact a registered agent to help manage your tax and super.
• Contact us – if you need more help.

Aboriginal and Torres Strait Islander peoples and other languages

In addition to our range of tools and services, we have information:

• on Tax for businesses for Aboriginal and Torres Strait Islander peoples
• in languages other than English (including Arabic, Chinese, Hindi, Korean, Punjabi and Vietnamese) to help people from culturally and linguistically diverse backgrounds understand tax and super in Australia.

If you would like to speak to us, you can also:

• phone our Indigenous Helpline on 13 10 30
• phone the Translating and Interpreting Service (TIS) on 13 14 50 if you would like to talk to us in your language.

Source: ATO