How to set up a business in Australia?
We have put together a guide on:
How to set up a business in Australia
The main structures available
Business tax rates Australia including a Tax Calculator Australia
Other business tips to consider
As always, we at Worldwide Accountancy are here to assist you with all your accounting, taxes and finance needs including how to set up your business. Contact our specialist team for your Free Initial Consultation.
Setting up a business in Australia can be completed by yourself through various channels. We have provided the main examples below:
- Australian Business Register (ABR) – ABN Applications
- Australian Securities & Investments Commission (ASIC) – Company Registrations and Business name registrations
- Business.gov.au website – Helpful business resources
- Relevant State Revenue Authorities – Stamping of trusts
Setting up your business in Australia
When setting up your business in Australia – the most important decision to make concerning business tax rates in Australia is your structure. It’s helpful to consider your business vision and objectives when setting up a structure. This critical decision will also have implications on:
- Regulatory obligations
- Personal liability
Main Business Structures
The main small business structures are below. There are some other structures that are outside of the scope of this blog for example not-for-profits, public companies and super funds.
- Sole trader – you run a business in your own name by applying for an ABN through the ABR and a business name through ASIC. All assets and liabilities are in the sole proprietor’s name, which may put other personal assets at risk.
- Partnership – as per a sole trader except it consists of two or more persons or entities joining in a partnership.
- Company – an entity registered with ASIC. A separate legal entity, the company is liable (not shareholders or directors) for all debts. There are certain instances where the corporate veil can be pierced and directors will be personally liable. Companies end in a Propriety limited or Pty Ltd or just P/L
- Discretionary trust – an entity that is in possession of a business, property, shares or any other assets for the benefit of a third party. A trust must have a trustee and beneficiaries. The trustee, through the use of a resolution determines where the income of the trust will be distributed.
- Unit trust – similar to a discretionary trust except the distributions are following the proportion of units held by the unitholders
How much tax does a Small Business pay in Australia?
The business tax rates in Australia depend on your structure and other certain elements.
Tax Calculator Australia
We found this nifty Tax Calculator for Australia from Atotaxrates.info which we wanted to share. This spreadsheet allows you to confirm the tax, offsets and Medicare charges you would pay as an individual in Australia. Its extremely useful for tax planning for your business and determining the best structure.
Sole trader tax rate Australia
Tax for a sole trader is levied at your marginal tax rate. These follow the individual tax rates published by the ATO. With the highest tax rate at 45c in the dollar at $180k above. This does not include the Medicare levy of 2% and the potential Medicare Levy surcharge which ranges from 1-1.5%
Partnership tax rate Australia
Profits and partnership tax are distributed to the partners in accordance with the partnership agreement, likely to be equal. The profit from the partnership will then be added to each individual partner’s marginal tax rate as per a sole trader above.
Company tax rate
The company tax rate in Australia ranges between 25% to 30% depending on the classification of the income it derives. If your business, running as a company is classified as a base rate entity (BRE) per ATO guidelines, then the tax levied will be 25% from the year 2022 and onwards. If the company is not considered a BRE, the tax will be levied at 30%. Find more details here.
Discretionary Trust tax rate and Unit trust tax rate
In most scenarios, a discretionary and unit trust will not pay tax. This is because a trust is used as a benefit for a 3rd party. Therefore, all profits must be distributed out to beneficiaries/unitholders, who are then taxed at their respective rates per the above. If income is not distributed, the trust is taxed at the highest marginal rate of 45%.
Business tips for small business and entrepreneurs
We also recommend considering the following during the development stages of your business endeavour. We have learnt these as business owners ourselves, working with countless businesses and through reading and development.
- Goal setting/KPIs – if you don’t know where you want to go, you won’t know how to reach it
- A business plan – There are some useful tools on the Business.gov website to set up a business plan
- Business name – this will play a part in your website, logo or any other designs
- Register your domain name for your website
- Finances and accounting – as accountants we always recommend implementing accounting software that provides real-time reporting for decision making. Having this infomation on hand means you can make informed choices then and there.
- Legal – consider everything you are doing is legal in Australia – or in any other jurisdictions for that matter
- Insurances – In addition to business and asset insurances certain industries and regulatory bodies require businesses to hold certain insurances (public liability insurance, professional indemnity, etc)
- Operations –the actions on how you will meet your goals
- Marketing and sales – how will you reach your target audience
- Technology – changes in technology occur rapidly be sure to keep up to date
- Networking – vital lifeblood of any business or professional relationship
Moving overseas with your business and ceasing your Australian Tax Residency
If you are looking at departing Australia and moving overseas to start a business there or continue your current business are a few things to think about. If you are already an Australian resident for tax purposes, then ceasing residency involves cutting ties to Australia and setting up a home base elsewhere.
To do this you must disconnect your residency from Australia – this is not so simple because it involves cutting ties to Australia and setting up a life abroad elsewhere. It’s crucial you set up a domicile elsewhere and not just “roam” around.
Many Australian digital nomads can get caught up in the digital nomad tax trap, where they think that just because they have departed Australia, they don’t have to pay tax in Australia. We recommend you to contact us to learn more about ceasing your tax residency, we can set up a business case and apply for a Private Binding Ruling with the ATO if need be. If you have assets and you cease your residency, we can asset you calculate your capital gains tax obligations, including the feasibility of a deemed sale under CGT event I1.
Speak to us today
Starting a business is an exciting time. There are countless areas to consider. One of the most important decisions for your business taxes is what business structure will you choose. Do not hesitate to contact us should you require any assistance. We offer a free initial consultation to ensure that we can assist you.