Tax 101 for Startups: Keep Your Business Compliant
11 November, 2024
In collaboration with UNSW Business School and the UNSW Tax and Business Advisory Clinic, presented by Katherine Appleby.
Starting a business in Australia is both exciting and a bit intimidating—there’s so much potential, but also a lot to navigate. To help you through the early stages, we’ve created a comprehensive guide on Launching Your Startup: Setting Up and Managing Your Business in Australia. This resource will walk you through everything from choosing the right business structure to managing everyday compliance tasks.
In this article, we’ll focus on a critical aspect of business compliance: taxation. Whether you’re a solo trader, in partnership, running a company, or managing a trust, here’s what you need to know to keep your business compliant and financially healthy.
Solo Trader - Taxation Essentials
Tax Rate: Solo traders are taxed at marginal tax rates.
ABN Required: An Australian Business Number (ABN) is a must.
GST and BAS: If your annual turnover is over $75,000, you need to register for Goods and Services Tax (GST) and file Business Activity Statements (BAS).
Employee Obligations: Have employees? You’ll need to set up PAYG withholding tax, superannuation, workers' compensation, insurance, and possibly Fringe Benefits Tax (FBT). Katherine Appleby calls this the “Employee Package” – an essential bundle for compliance.
Partnership - Taxation Essentials
If you're in a partnership, tax compliance gets a bit more complex:
Separate Tax ID: Partnerships require their own Tax File Number (TFN) and ABN and must file a partnership tax return.
Individual Tax Rates: Partners are taxed on their share of profits at their individual tax rates.
GST and BAS: Like solo traders, partnerships earning over $75,000 annually need to register for GST and file BAS.
Employee Package: If you hire employees, the same “Employee Package” requirements apply.
Adding Partners: Bringing in a new partner? Each new partner means updating your TFN and ABN with the tax office – a detail that can complicate exits.
Company - Taxation Essentials
For those running a company, here’s what tax compliance looks like:
Directors and Shareholders: Companies are managed by directors, appointed by the owners (shareholders). While a shareholder agreement is advised, it’s not mandatory.
Profit Retention and Dividends: Companies can retain profits, and owners who aren’t employed by the company can receive dividends.
Fixed Tax Rates: Companies benefit from a fixed tax rate.
Enduring Existence: Unlike other structures, companies can live indefinitely, as shares can be transferred upon death.
Trust - Taxation Essentials
Trusts are unique and offer a flexible structure, often used for asset protection and tax planning. To stay compliant:
Trustee Responsibilities: The trustee manages the trust on behalf of the beneficiaries and is responsible for tax filings.
ABN and TFN Requirements: Trusts require both an ABN and TFN.
Distribution of Income: Income distributed to beneficiaries is taxed at their personal tax rates.
Annual Tax Return: Trusts must lodge an annual tax return and report income allocated to beneficiaries.
Understanding the basics of tax compliance for your business type is key to staying financially healthy. For more details on setting up your startup correctly, check out our guide on Launching Your Startup: Setting Up and Managing Your Business in Australia.
Stay compliant, and set your startup up for long-term success!
