It can be quite exciting for you to start a business in Sydney. There are many possibilities and growth opportunities. However, there are plenty of responsibilities to deal with as well, such as business tax.
The Australian taxation system is quite complex and without having a fair idea about it all, you can be on sticky grounds. That is why, you need proper guidance and advice to plan your taxes properly. Here is the ultimate guide to business tax planning for startups like you in Sydney.
Understand the basics of business tax obligations
You have to understand your core obligations for successful tax planning. In Australia, the way you will be taxed will be determined by your business structure. Whether you have a company, partnership, sole trader organisation or trust, tax will be charged accroding to your business structure.
You have to sign up for an Australian Business Number (ABN). You may also need to register for the Goods and Services Tax (GST), based on your turnover.
There are other common obligations as well, such as Pay As You Go (PAYG) withholding if you have employees, superannuation contributions, and potentially fringe benefits tax (FBT) if you offer certain perks to your workers. When you know what exactly applies to your startup business, you can avoid unexpected tax bills and penalties.
Set up strong financial records early on
As a new business owner, you should not neglect proper record-keeping right from the very early stages. When you have proper tax records, you can expect no penalties or reviews. Your organisation will be regarded as proper, and in compliance with the ATO regulations.
It is a good idea to try out accounting software programs like Xero or QuickBooks, to automate various processes such as invoicing, tracking of expenses and reporting GST. As a good practice try to keep physical copies of your bank statements in a safe place, as well as scanned digital copies on the cloud. Also keep copies of your receipts, invoices and other relevant financial documents that you might need during the tax lodging period.
The ATO expects business owners to keep records for a minimum of 5 years. It is best that you establish proper record-keeping habits right from the beginning.
Leverage tax deductions for startups
You can reduce your tax burden effectively with the help of tax deductions. There are various beneficial options available for startup organisations. Common deductions include professional fees, marketing costs, utility costs, rental expenses and other operational expenses.
If you work from home, you can claim a part of your expenses on electricity, internet and even home office furniture. Startup owners can also claim tax deductions for business equipment under the instant asset write-off scheme. It can help you to deduct the cost of eligible purchases immediately, instead of depreciating them over a period.
By meticulously tracking all expenses, you can ensure you receive all eligible deductions.
Plan for GST and BAS lodgements
For businesses with an annual turnover of $75,000 or more, registering for GST is mandatory. Once registered, you must charge GST on sales and lodge a Business Activity Statement (BAS) with the ATO either monthly, quarterly, or annually, depending on your reporting cycle.
Many startup organisation owners fail to set aside GST funds and this is a common mistake. It can give rise to problems in cash flow during the time of lodging taxes. Maintain a separate bank account for GST and transfer the tax part of every sale into it. When you do this, by the time your BAS is due, your funds will be ready as well.
Manage cash flow to support tax obligations
Tax planning is closely related to the management of cash flow. If there is a lack of enough cash flow, you can struggle to satisfy the tax obligations for even an otherwise profitable business. Naturally, you should develop a proper tax savings plan and set aside a part of your income for tax purposes.
Try to review your accounts receivable regularly, to make sure that your clients make timely payments. To encourage good habits, you can consider offering incentives for making early payments.
On the other hand, strategically manage accounts payable to optimize supplier payment terms and avoid late fees.
Seek professional advice early
Do not wait until tax season starts. It is better to hire a professional accountant or tax advisor early on. He can help you to identify opportunities for claiming tax concessions, structuring your finances, and coming up with custom strategies that can be ideal for your business goals.
Final Words
By hiring an expert in Australian tax laws, compliance, and regulations, you can maximize your tax deductions and ensure proper finances for your startup organisation. When you go for a tax consultant from a company like Prowess Business Advisers, you can be assured of staying compliant with the ever-changing rules of the ATO and avoiding financial penalties that could come in the way of your success.