Starting Your Own Business

Starting your own business is exciting and fun, however, there are a few things you need to know, including:

  • the tax implication of your business structure (e.g. sole trader, trust, company, partnership)
  • the deduction you can claim
  • the records you must keep and for how long
  • registering your business (ABN & Business Name)
  • setting up a separate bank account for business transactions

Which Business Structure Suits Your Needs?
Sole Trader
As the words suggest, a sole trader is an individual running a business, and it is the simplest and most economic structure. The key features are:
– A sole trader is legally responsible for all aspects of the business, including debts and losses.
– When registering for a business, a sole trader uses their very own TFN, meaning they pay tax at the same level as individual taxpayers do, and they may also be eligible for small businesses tax offset.
– Sole traders must register for GST when their turnover reaches $75,000, however, they can decide to register earlier if wanted.
– Sole traders are responsible for paying their own superannuation, however, that is not mandatory.
– Sole traders can employ people and are responsible for paying their tax withholding and superannuation liabilities.

It is a group of people that share business responsibilities. It is relatively inexpensive and simple to run. A partnership agreement is not necessary but highly recommended, especially if the partners hold different shares (40% & 60%). The key features are:
– all partners share income, profit and losses.
– each partner reports their own income tax in their own tax return, the partnership does not pay income tax.
– the partnership has its own TFN and ABN.
– the partnership must register for GST if the annual turnover reaches or exceeds $75,000.

Company (PTY LTD)
A company is a legal entity with a more complicated setup and administration costs because it has different reporting requirements. The directors of the company are legally required to have a director ID. The key features are:
– TFN and ABN must be applied separately.
– the company must register for GST if the turnover reaches or exceeds $75,000 per year.
– companies must lodge a tax return every year.
– the directors (or any other entity) cannot withdraw money from the business.
– tax rates are different for companies.
– companies can employee people and must pay their obligations (PAIGW & Superannuation).

A trust can be a complicated and expensive structure to set up. A trustee can either be a company or an individual, and they are legally responsible for the operations of the trust. Profits from the trust go to the beneficiaries. The key features are:
– the trust must have its own TFN and ABN.
– the trust must be registered for GST if the annual turnover reaches or exceeds $75,000.
– trusts might be liable to pay tax.
– trusts must pay super contributions for their employees.
– tax payments will depend on how the trust income is distributed.

Most small businesses go for the sole trader structure or company structure. It is always recommended to speak to your bookkeeper or accountant before making any decision, they will guide you through the best option for you based on your circumstances and business needs.

If you need help with your business set up, you can reach Sharon from North Brisbane Bookkeeping at 0431621878, or send an email at info@northbrisbanebookkeeping.com.au.
We are here to help 🙂

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