Yahoo Finance 
Top tax considerations for new businesses
By Mark Chapman, H&R Block
Most common business structures
So, you’re setting up a new business and you need to know the tax implications. The first question you’ll need to consider is what structure to use. The most common options are listed here:
Sole Trader
The main advantage of this structure is its simplicity; there’s less red tape to negotiate to start your business and the associated legal and professional costs are minimal.
When you run a business as a sole trader, you simply record the business’s income and expenses in your personal tax return.
The advantage of trading as a sole trader is that (subject to some potentially tricky anti-avoidance rules), you might be able to offset any losses you incur in the early years of trading against your other income. If you make a success of things, you’ll also be able to access the 50% CGT discount on any capital gain you make when you ultimately sell.
Also read: Immigration up but which state is most popular?
On the downside, once you start trading at a profit, you’ll pay income tax at your applicable marginal tax rate (which could be up to 49% for those earning more than $180,000).
Discretionary Trust
A trust is a business structure where a trustee (an individual or company) carries out the business on behalf of the members (or beneficiaries) of the trust.
The major advantage of using a discretionary trust to run your business is that you are able to decide who amongst the beneficiaries of the trust will receive distributions of profits from the business.
There are also asset protection advantages in holding assets through a discretionary trust.
Company
The other possible scenario is to set up your business through a company.
A company is a separate legal entity to the people who run it. That means that the company lodges its own tax return and pays tax on its profits at the company tax rate – currently 28.5% (provided the company’s aggregate turnover is less than $2m[1]). The company can then distribute profits to shareholders in the form of franked dividends. These dividends are taxable to the shareholders less a credit for the tax already paid by the company, at the full corporate rate of 30%.
Also read: How high can interest rates go this year, realistically?
The most common reason why people choose a corporate structure is that it provides limited liability to the shareholders. In other words the extent to which shareholders are liable for the debts of the company is limited to the amount they’ve invested as share capital. There are also asset protection benefits because creditors of the company cannot access the assets of the shareholders.
Unfortunately, companies cannot access the 50% capital gains tax discount. Setting up and maintaining a company is also more expensive than the alternatives, with greater compliance obligations imposed by regulators like ASIC.
What registrations do I need?
Tax File Number
If you’re operating as a sole trader, you will simply use your own TFN.
If you’re creating another entity, such as a trust, partnership or company, that entity will need its own TFN. You can get one via the Australian Business Register (ABR) website (www.abr.gov.au).
Australian Business Number
An ABN is essential for any Australian business since it is used in numerous other business interactions, with customers, suppliers and other government agencies. You’ll need an ABN for instance before you can register for GST. You can get an ABN through the ABR website (see above).
Australian Company Number
You’ll only need this if you are planning to run your business through a company. If so, you’ll need to get this before you apply for an ABN. You can apply for one through the Australian Securities and Investments Commission website (asic.gov.au).
Also read: Samsung to re-sell Note 7s as refurbs?
Goods and Services Tax
Your business will need to register for GST once your annual turnover is $75,000 or more.
Taxi drivers and ride-sharing drivers (such as Uber drivers) need to register for and charge GST no matter what their turnover is.
What are the tax breaks for new businesses?
For small businesses just starting out, the government recently introduced an additional tax relief which may help to reduce the tax burden in those difficult early days.
The new relief applies to all businesses with an aggregated turnover of less than $2m a year (which will be most businesses in start-up phase) and allows an immediate deduction for many professional costs incurred in starting a business venture, such as costs for accounting and legal advice, as well as a range of government charges and taxes.
The relief can also be claimed by individuals who intend to set up a small business through another entity such as a company or trust. In other words, the entity which claims the deduction for start-up costs (the individual) need not be the same one which ultimately runs the business (the company or trust).
What can be claimed?
A new business can immediately deduct costs incurred in getting advice from a lawyer or accountant on how to structure the business. This includes advice on whether to set up the business as a company, trust or partnership, how the business should be financed, costs of market research, and so on. It also covers costs incurred in actually setting up the legal structure of the business.
Eligible costs would also include professional advice on the viability of the proposed business (including due diligence where an existing business is bought) and the development of a business plan. Also covered would be the costs associated with raising debt and equity capital for the operation of the proposed business.
Also read: How to avoid car service cowboys
Note that you can claim the deduction even if the business doesn’t go ahead. For example, you might prepare a business plan, which ultimately demonstrates that the business will not be profitable, and hence choose not to proceed.
It’s also now possible to claim an immediate deduction for a range of payments to government agencies relating to the regulatory costs incurred in setting up the new business. This includes costs such as the fee for creating a company as well as costs associated with transferring assets to that entity, such as stamp duty.
[1] Shortly to reduce to 27.5% on turnover less than $10m, subject to legislation
