With the Government’s announcement of the New Start-up investment tax incentives
introduced to Parliament this week we may see more of us catch the contagious ‘entrepreneurial bug’. Guided by your never resting spirit you have taken a leap of faith and now find yourself facing a daunting tsunami of challenges. So while these incentives are considered the 'world's most generous', starting a business can be a daunting task. Many will struggle to succeed because of mistakes made during the initial start-up phase. The following are some common pitfalls to avoid when starting a business.
Starting a business can be a daunting task. Many will struggle to succeed because of mistakes made during the initial start-up phase. The following are some common pitfalls to avoid when starting a business.
If you are operating a business that is entitled to recover GST, it is recommended the business consider voluntarily registering for GST.
Incurring significant expenditures prior to earning revenues in the early stages of many businesses is common. While a business is not required to register for GST until its income exceed $75,000, it may be beneficial to register immediately in order to recover the GST incurred during the start-up phase.
Initial start-up costs and cost overruns are not uncommon when starting a business. As the saying goes, “you never get a second chance to make a first impression,” so it is essential that appropriate funds are expended to ensure the proper launch of the business and to ensure that sufficient operating working capital is available to fund the operations during the start-up and launch phase.
As a result, when you are considering the financing that will be required for the business, projections should be conservative and include a contingency for unanticipated expenditures. In addition, to the extent that expenditures incurred are subject to GST, there may be a substantial delay between the timing of the cash outflow for the payment of the GST and the subsequent recovery of the GST.
When operating a business, you have the added responsibility of handling ‘trust’ funds for Australian Tax Office (ATO), such as GST collected, employee PAYG and employee superannuation. In the case of a company, directors may be held personally liable for any unremitted GST, PAYG and superannuation. Failure to remit source deductions and GST when due may result in significant penalties and interest assessed, all of which are non-deductible for income tax purposes.
Having said that, any interest incurred on an operating line of credit for business operations is fully deductible for income tax purposes. As a result, the business should use the operating line of credit to ensure payroll source deductions and GST are remitted when due.
While it might seem like a luxury you cannot afford, especially during the start-up phase when funds are scarce, guidance from experienced legal and accounting professionals could result in tax planning and savings opportunities. Some tax planning topics for considerations are:
a. Utilization of losses incurred
b. Income splitting with family members
c. Asset protection from creditors
d. Future sale of the business
These are only a few of the considerations that should be taken into account when starting a new business. You may also consider various operating structures such as:
a. Sole proprietorship
b. Partnership
c. Company
d. Trust (Unit or Discretionary)
As each situation is unique, you should speak with a qualified professional to assist you in determining how to address these issues and others that may be associated with starting your business.
Contact SMART Business Solutions on 03 5911 7000 or reception@smartbusinesssolutions.com.au
You need SMART solutions for YOUR business, not just annual tax compliance! Get the SMART team working with you. Call SMART Business Solutions today on 03 5911 7000
Treasury has released exposure draft legislation for Payday Super that will require employers to pay superannuation at around the same time as salary and wages are paid to the employee. The changes are proposed to commence from 1 July 2026.
