Franchising and tax
Starting and running a franchise business is much like starting and running any other small business. However there are some additional things to consider for the transactions between franchisors and franchisees.
The person who grants the right to use a business brand name or trademark and the right to produce or distribute their product or service is called the franchisor.
The person who receives the right to use a business brand name or trademark and the right to produce or distribute the franchisors product or service is called the franchisee.
Australian business number
The Australian business number (ABN) is a single identifier for all business tax dealings with us and often dealings with other businesses, government departments and agencies.
As a franchisor, you need an ABN to register for goods and services tax (GST) and other business tax registrations such as pay as you go (PAYG) withholding or the fuel tax credits scheme.
In most cases, payments you, as the franchisor, receive from the franchisee will be your assessable income (net of any GST component) for income tax purposes. Payments from the franchisee generally include:
- initial franchise fee
- franchise renewal fees
- franchise service fees or royalties
- advertising fees
- transfer fees
- training fees.
You treat these payments like any other business income.
The payments will generally also include a GST component if the franchisor is registered for GST.
You need to report and send the GST to us. The franchisee will generally be able to claim a GST credit from us for the GST amount included in the supplies listed above.
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