Starting a Business in Australia

Decide on your business structure

How you set up your business can affect how you protect your assets, how you are taxed and the level of control you have. The most common business structures are:

• Sole trader: This is easy to set up and gives you the flexibility to change your structure as your business becomes more complex. As a sole trader you’ll bear all the risk of the business, so if something goes wrong the responsibility will fall on you.
• Partnership: If you’re going into business with between two and 20 people you could form a partnership. It’s relatively inexpensive to set up a partnership and you share the risk with your business partners. This means that you may also be responsible for their debts and will need to make business decisions in line with your partnership agreement.
• Company: Many small businesses establish themselves as a company. A company is a separate legal entity that can hold assets and run the business. It’s owned by shareholders and run by directors. The cost of setting up a company can be relatively high and there are ongoing reporting obligations to ASIC that must be followed. The advantage of a company is that the risk to the shareholders is limited and it’s easy to sell or change the business. Directors are liable for what the company does, which means they may face significant penalties if the company breaches the law.
• Trust: A trust carries on business through its trustee for the benefit of its beneficiaries. The trustee uses the assets of the trust to run the business and distributes profits to the beneficiaries. Setting up a trust can be complicated and expensive to manage. As trusts have limited liability they can be an effective way to protect the assets of your business. There are also different types of trusts that you can set up (like discretionary or unit trusts) which affect how income is distributed and who is entitled to the assets of the business.

Regardless of which type of business structure you have, there will be some business licences and registrations that you need to apply for. These include:

• Business licences or permits: Depending on what type of business you have, your business may be required to hold a special licence or permit. This may depend on the location you’re working in or the type of business you have. Check with your local council and industry organisations to find out what licences and permits your business needs.
• Australian Business Number (ABN): All businesses are required to have an ABN. These are free and can be obtained quite easily online from the Australian Business Register. If your business doesn’t have an ABN, other businesses who pay you may withhold tax at the top marginal rate. Your ABN should be included on your tax invoices and other business documents.
• Register a business name: If your business has a formal name (like a company name) and a trading name (the name your customers know it as) then you should register the trading name as a business name. If you’re a sole trader operating under your own name then you don’t need to register a business name. You can check and register your business name online. Before you register your business name, it’s also worth checking whether it infringes on another person’s trade mark or is similar to someone else’s. You can check this at IP Australia.
• Protect your intellectual property: If your business has unique ideas, trade marks or designs, you may want to register these so that other people cannot use them. There are several ways you can protect intellectual property, including:

• Meet your taxation obligations

Everyone who has to pay tax in Australia needs a Tax File Number (TFN). This is a nine-digit number issued by the Australian Taxation Office (ATO). The type of TFN your business needs and how you’re taxed will depend on your business structure.

• Sole trader: You can use your individual TFN as a sole trader. You will not need to pay payroll tax, superannuation guarantee or workers compensation for yourself but you may need to do this if you have any employees. The income you make from your business will go into your personal tax return and your business expenses may be deductible.
• Partnership: Partnerships have their own TFN and the income and expenses are often split amongst the partners. Each partner then includes their share of the partnership income in their personal tax return. Partners are not employees so the partnership will not be required to pay payroll tax, superannuation or workers compensation for them.
• Company: As a company is a separate legal entity, it has its own TFN and lodges tax returns. It’s also responsible for paying any payroll tax, superannuation guarantee and workers compensation for its employees. The company may also pay out its profits as dividends to its shareholders. The shareholders must then account for these dividends in their own personal tax returns.
• Trust: Trusts must have a TFN and lodge returns but they don’t generally pay tax. The beneficiaries may be required to pay tax on the distributions they receive in their personal tax returns.

Any business that has a turnover of more than $75,000 is also required to register for GST and submit Business Activity Statements. You also need to register for GST if you want to claim fuel tax credits or GST credits.

If your business has employees, or if it’s a company, it will also need to register for PAYG. This means that the business will need to withhold tax and remit it to the ATO on behalf of its employees, directors, office holders and possibly some contractors.

You can apply for a TFN, GST and PAYG together at the Australian Business Register. To register for payroll tax and workers compensation, contact the relevant revenue authority for your state or territory.

Once you’ve gone through each of the points on this checklist, your business will be set up. Setting up a business can be a complicated process, so it’s best to speak to your legal, tax and accounting advisers before you begin. If you’d like help setting up your business get in touch with CCASA.

With acknowledgement from Regal Biz.