Starting your own business
Earning money from a business usually means you will need to pay tax.
You may be eligible to claim some deductions for business expenses to reduce your tax.
If you employ people to work for you in your business, you have to pay tax and super for them.
If you aren't sure what you need to do, ask a registered tax agent or contact us for help.
Before you start your business
Business or hobby
It's important to know whether your activity is a business or hobby.
'Hobby' means something you do in your spare time for fun. If you intend to make a profit, you’re running a business.
If you're running a business, you have legal requirements such as:
- telling us how much income you've earned
- keeping records for any expenses you want to claim.
Choosing your business structure
There are four main business-types in Australia – sole trader, partnership, company and trust.
Each structure has different tax and reporting rules. These affect how much tax you pay and what happens if you get into debt. You need to understand these rules before you choose your business structure.
Getting your business started
Registering your business
When you start a business you need to get an:
- Australian business number (ABN)
- tax file number (TFN) – if you don’t already have one.
Depending on how much money you make and whether you have employees, you may also need to register for:
- Goods and services tax (GST)
- pay as you go (PAYG) withholding
- fringe benefits tax (FBT).
Getting a TFN for your business
All businesses need a tax file number (TFN).
If you're operating your business as a sole trader you can use your personal TFN.
For other business structures, you need to get a TFN for your business when you apply for an ABN.
Getting an ABN
An Australian business number (ABN) is a unique number for your business to use when dealing with other businesses, government, and the ATO.
Not everyone needs an ABN. You only need one if you are running a business.
You must put your ABN on your invoices. If you don't, other businesses will keep more tax than usual from any payments they make to you and send that tax to us.
It is free to get an ABN.
Registering for GST and other taxes
You may need to register for GST and other taxes, depending on the type of business you're running.
Reporting and paying tax
If you run a business, you will need to pay tax on money your business earns. The type of tax return you lodge depends on your business structure. You may also need to lodge activity statements.
Your tax return
Your tax return tells us:
- how much money your business has made
- how much tax you've paid.
You must lodge a tax return each year.
If you have set up your business as a sole trader, you will use your individual tax return to lodge your business tax information.
If you have set up your business as a partnership, company or trust, you use a different type of tax return just for your business.
Activity statements are different to tax returns. Businesses use an activity statement to report and pay taxes such as:
- goods and services tax (GST)
- pay as you go (PAYG) instalments.
If you are registered for GST, we will send you a business activity statement (BAS). We send most businesses their BAS every three months.
If you are not registered for GST, we will send you an instalment notice instead of a BAS. We will send this to you in your first or second year of business.
Claiming deductions and concessions
If you spend money on expenses for your business, you may be able to claim a tax deduction. This means you pay less tax.
Some business may also be eligible for tax concessions, offsets or rebates.
Paying your workers
If your business has employees or contractors, even if they are family, there are some extra things you need to do.
On the first day an employee starts working for you, you must ask them to fill out a Tax file number declaration form. If they don't, you will have to take tax from their pay at the highest rate and send it to us.
When you have employees, you must take tax from their pay and send it to us. This is called pay as you go (PAYG) withholding.
When you have employees, you must pay superannuation (super) contributions for eligible employees. You send this money to their super fund. This is called the 'super guarantee'.
Single touch payroll (STP)
Single Touch Payroll means you need to tell us your employees' payroll information each time you pay them. You need to report:
- salaries or wages paid
- tax withheld
- super contributions
When and how you report depends on how many employees your business has.
You can get special business software that will help you report this information to us. There are free and low-cost software products.
If you hire a contractor to work for your business, there are some different tax and super rules. It's important to understand the difference between employees and contractors.
Keeping business records
Keeping records is essential to running your business properly. You must keep some records for at least five years. Keeping accurate records also helps you to:
- know how your business is going
- keep track of your income and expenses
- show banks or lenders how your business is going.
Authorised by the Australian Government, Canberra.