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Small Business Start Up Information
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This crucial information has been prepared by Lyndon &
Associates to assist you in taking the first step towards establishing your
business.
Starting a small business is not an easy
task, as there are many initial decisions which must be made before your
business' establishment. The following firstly will provide you with
information regarding relevant business structures essential to starting up
a new business.
Once a suitable business structure has
been chosen, there are many application and compliance forms, which must be
filled out and lodged. Some of these include; ABN, TFN, Workcover and
Business Name Applications.
Now that the initial compliance
requirements are taken care of, there are a number of issues which must be
considered regarding the ongoing welfare of your business. These
issues include, Hiring of Employees, Paying Superannuation,
Accounting/Bookkeeping systems etc. We can discuss these areas and some
of the more important Compliance Forms, which are necessary for the ongoing
operation of your business, in more detail once the decision of starting
your business has been taken.
We believe it is vital that a small
business proprietor knows and adheres to all compliance obligations.
However, it is just as important that this obligation is streamlined so he
or she can concentrate on what is most important, earning an income.
As Accountants we can ensure that every
effort is made to enable you to focus on growing your business knowing your
compliance obligations are being administered.
Areas of your business you will need to consider, including
some of the more important Compliance Forms.
- Business
Structures
- Business
Name Application
- Tax Rates
- Software
Package Options
- Employer
Obligations
- Tax File
Number Declarations
- Superannuation
- Workcover
BUSINESS STRUCTURES
Before commencing your business it is important that you
first consider what type of entity you wish to trade under.
The following lists the different features of each trading
entity.
Sole Trader
- One person
- Easy and
cheap to set up
- Owner is
personally liable for debts
- May choose
business name
- Separate
Accounting records need to be established for the business
- § Business is
not a separate legal entity
- Profits are
taxed at the individual's marginal tax rate
Partnership
- Two or more
people
- May choose a
business name
- Advisable to
have a Partnership Agreement
- Easy and
cheap to set up
- Partnership
is not a separate legal entity
- Partners are
jointly and separately liable
- Separate
Accounting entity
- Governed by
Partnership Act and Partnership Agreement
- Profits are
shared amongst individual Partners and are taxed at the individual's
marginal tax rate
Company
- Separate
legal entity
- One or more
persons can form a company under Corporate law
- Company has
unlimited life
- Company has
limited liability, ie shareholders cannot be sued
- Governed by
Corporate law
- Director's
Act on behalf of Shareholders
- Separate
legal and Accounting entity
- More costly
structure
- Company
profits are taxed at 30%
Trust
- One or more
persons can form a trust
- Not a
separate legal entity
- Liability is
left with the trustee
- Can be a
unit trust or a discretionary trust
- Profits are
distributed to beneficiaries. The proportion of profits is
dependent on the structure of the trust
- Can be a
costly option
- Generally
allows for the most flexible option to distribute profits
BUSINESS REGISTRATION
After you have established the type of structure under which
your business will operate, but before you can start, you must register
your business with the Australian Taxation Office.
You may need to apply for the following.
- Tax File
Number
if the entity you are trading under does not already have a Tax File
Number. That is, you won’t need a tax file number if you are a
Sole Trader because your own individual tax file number is
sufficient. However, you will need a Tax File Number if you are
trading under a new Trust, Partnership or Company.
- Australian
Business Number. All businesses, no matter what entity,
will require an Australian Business Number (ABN).
- Goods and
Services Tax (GST). If you believe your business
will turnover $50,000 or more, you will need to register for
GST. If your business will turnover less than $50,000, GST is
optional.
BUSINESS NAME APPLICATION
For a business to operate using a name other than the name
of an individual, the business will need to register this name with the
Office of Fair Trading.
For example, if John Bloggs operates his business
under the name of John Bloggs Plumbing, then his name must be
registered.
Registration of Company names are lodged with Australian
Securities Commission.
SOFTWARE PACKAGES
It is important a business has an adequate bookkeeping
system for the following reasons:
- To enable an
accurate analysis of business performance
- To enable
accurate and prompt completion of Business Activity Statements and
other compliance obligations
Each Accounting software package has their own features and
advantages. You will need to seek independent advice from our
Bookkeeping division for further analysis.
EMPLOYER OBLIGATIONS
If you are intending to employ Staff you must first notify
the Australian Taxation Office on your business registration account.
You then have three compliance obligations you must adhere to. These
obligations are relevant despite whether you are trading as an individual,
Partnership, Trust or Company.
These obligations are
- Tax File
Number Declaration
- Superannuation
Contributions
- Workcover
payments
TAX FILE NUMBER DECLARATION
This form is required to inform the Australian Taxation
office of the Employer and Employee relationship.
Both parties need to disclose personal information including
Tax File Number. Failure to do so will incur penalties. Both
parties also need to sign the document. One form needs to be
completed for each employee.
SUPERANNUATION CONTRIBUTIONS
- Employers
must pay a minimum level of superannuation for a financial year by the
following 28 July at the latest for most employees or incur a non-tax
deductible Superannuation Guarantee Charge (SGC) and penalties.
- Who is an
'employer'?
A
person who pays salary or wages to another person on a full-time,
part-time or causal basis. May include payments made under a
contract with an individual (but not with a company, partnership or
trust) that is wholly or principally (at least 50%) for that person's
labour.
- Who is an
'employee?'
An
employee includes -
An employee within ordinary concepts.
The main test of a common law employment relationship is the right to
control how, when, where and who is to perform labour.
A subsidiary test is whether a person provides services as an
individual carrying on their own business (contract for services) or
individually as a part of another's business organisation (contract
for service).
- How much is
payable?
Employer
superannuation contributions based on an employees earnings base,
generally the 'Ordinary Time Earnings' (OTE) is 9% for the financial
years 2006 and onwards.
- For each employee,
OTE includes -
Earnings
for 'ordinary' hours of work (in the case of casual workers, use
actual hours worked (not minimum hours stipulated in employment
contracts)
- Over-award
payments
- Commission or
bonuses that relate to specific performance criteria
- Director's
fees
- The
following payments are not included in OTE -
- Bonuses
that do not relate to specific
performance criteria (eg. Christmas bonuses)
- Ex-gratia
payments
- Overtime
- When is
Superannuation due to be paid?
To
satisfy Superannuation Guarantee and award obligations, the employer
must pay the contributions to a specific Fund or into a complying
superannuation entity by 28th July following the end of the
financial year.
Since 1 July 2003, employers have been required to pay superannuation
guarantee quarterly.
Please seek independent advice as to the most appropriate
Superannuation scheme for your circumstances.
WORKCOVER
All employers must pay Workcover
insurance premiums if total remuneration to Employees is more than $7,500.
Employers can select from a variety of
insurers.
Once an application form is lodged, the
insurer will set a workcover percentage. Your premium is calculated
by multiplying the employee salary by the percentage.
Salary includes:
- Gross salary
- Superannuation
- Overtime
- All leave
payments
- Director's
fees
- Allowances
Salary excludes
- Partnership
drawings
- Profit
distribution within a trust
- Dividends to
shareholders
The insurer will notify you of the premium and the date of payment.
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