BUSINESS INSURANCES

9.1 Australia Tax Compliance

NOTE: It is the responsibility of the franchise partner to stay up to date with changes made to tax rules and regulations.

Please refer to the ATO website (www.ato.gov.au) for current information.

Maintaining an accurate record of all possible business-related deductible expenses is an important function that all new business owners must learn to perform. Accurate record- keeping can substantially lessen the tax burden at year’s end.

Accuracy can only be assured by utilising proper documentation procedures relating to expenditures such as cash receipts, cancelled cheques, daily mileage records, petty cash vouchers, etc.

Properly completed expense documentation must be retained and must match bookkeeping expense entries.

Some deductions which may be claimed by the franchise partner include:

  • most insurance premiums
  • duplication of keys
  • uniforms
  • advertising
  • office supplies
  • printing
  • interest expenses on any business loans `
  • repair costs
  • superannuation contributions
  • rent expenses
  • fees to Music Lessons Academy
  • business fees or commissions
  • salaries and wages to employees, etc.

It is also advisable to consult an accountant or small business adviser, especially in the beginning.

There are penalties assessed for non-compliance with tax laws.

9.2 Australian Business Number (ABN)

All franchise partners are required to an Australian Business Number (ABN).

The ABN is the identifying number that a business uses when dealing with other business – for example, the Franchise partner’s ABN is recorded on all customer invoices to avoid those customers having to withhold tax from payments to Music Lessons Academy.

9.3 Business Structure

Franchise partners can choose to operate as a sole trader or company structure. The table below shows some of the main differences between the two options.

Note all the blue text are hyperlinked, providing more information.

Set up costs

SOLE TRADER

Sole trader business structures have fewer set-up costs. Your costs may include:

COMPANY

Companies are more complex business structures and have higher set-up costs. These costs may include:

Record keeping

SOLE TRADER

A sole trader is a simple business structure, so it generally has less paperwork.

Business income and expenses go in your individual tax return using a separate Business and professional items schedule – you don’t need to lodge a separate tax return for your business.

You need to keep your financial records, including tax returns, for 5 years.

You need to make sure you notify government agencies of any business changes within 28 days.

COMPANY

A company generally has more paperwork and potentially higher ongoing costs.

Companies must:

Your financial records must:

  • record and explain transactions and financial position and performance
  • enable true and fair financial statements to be prepared and audited.
  • Companies are subject to annual review by the Australian Securities and Investments Commission (ASIC)

Companies are subject to annual review by the Australian Securities and Investments Commission (ASIC)

You will also need to keep records that show your compliance with your other obligations and legal requirements of companies. These requirements include having:

  • a registered officer
  • a principal place of business
  • regular company meetings
  • a written record of meetings and resolutions.

You need to make sure you notify government agencies of any business changes within 28 days.

Business income

SOLE TRADER

The Australian Taxation Office (ATO) treats the money you earn in your sole trader business as your individual income. This means you are also responsible for any tax your business must pay.

You can claim deductions for costs incurred in running your business.

You can withdraw money from your business bank account.

COMPANY

Money the company earns belongs to the company. Even if you own the company (you are a shareholder), the money belongs to the company.

A separate business bank account is mandatory for a company.

As a director, the company may pay you wages or directors’ fees, but you cannot draw money from the company as personal drawings.

If you receive funds from your company, then you must show the funds on your individual tax return.

Business debt liability

SOLE TRADER

You are personally liable for financial or tax debts in a sole trader business structure.

There is no division between business assets or personal assets (including your share of joint assets such as houses or cars).

Assets in your name can be used to pay business debts.

COMPANY

The company is generally liable for all business debts. However, your personal assets can also be at risk if you’re a director of a company and the company can’t pay its debts.

As a director, you are personally liable for pay as you go (PAYG) withholding and superannuation debts. Even when you cease as a director, you are liable for the period you were a director.

A company can own property or assets, and these belong to the company – not the directors nor the shareholders. The company may sell these assets to help pay its debts.

Insurance

SOLE TRADER

Your business activities will determine the type of insurance you need, for example the business type, whether you sell products or services and if you employ people.

You should consider insurance for personal injuries, disability and death, as sole traders aren’t covered by workers’ compensation insurance.

You require workers’ compensation insurance if you employ staff.

COMPANY

As with sole traders, your business activities will determine the type of insurance you need.

Directors and officer’s liability insurance is not compulsory but may be considered by directors.

You require workers’ compensation insurance if you employ staff.

Generally, directors will not be held liable for the debt of a WorkCover claim. The company is liable.

Accessing money from your bank

SOLE TRADER

As a sole trader you can take money out of your business account as personal drawings.

A separate business bank account isn’t compulsory for sole traders, but it is recommended to keep track of your business finances.

COMPANY

A separate business bank account is mandatory for a company.

As a director, the company may pay you a salary, wages or director’s fees, but you cannot simply withdraw money as ‘personal drawings’ from the company. You may also receive money via shares, dividends or loans

9.4 Registration for Taxes

Ensuring you’re registered for the correct taxes is an essential step to opening your business.

The taxes you must register for depend on the type of business you’re starting. Some tax registrations apply to all businesses and others may be compulsory depending on your business’ size and type. Some registrations are entirely optional but can make life easier if you have them.

Follow the guide below to find out which tax registrations you need

Tax File Number (TFN) (Required)

You must have a TFN regardless of the type of business you’re starting. If you plan on running your business as a sole trader, you can keep your individual TFN. If you’re operating as a partnership, company or trust, you’ll need to register a separate TFN for the business.

Australian Business Number (ABN) (Recommended)

Although you can run a business without an ABN, it is highly recommended you have one. Getting an ABN is free and can make running your business easier in the future, particularly if you have to register for other taxes. For example, if you need to register for Goods and Services Tax (GST) now or in the future, you’ll need an ABN first.

Without an ABN, other businesses must withhold 49% from payments they make to you for tax purposes.

Australian Company Number (ACN) (Required for companies)

If you register your business as a company, you’ll be given an ACN by the Australian Securities & Investments Commission (ASIC). You’ll need to apply for your ACN before getting an ABN.

Apply for a company

If you’re operating as a sole trader or partnership and decide that you want to become a company, you’ll need to:

  • make sure you have met any lodgement, reporting and payment obligations you have to government agencies (for example, activity statements, tax debts and pay as you go (PAYG) withholding reports)
  • cancel your ABN
  • register your business as a company and receive an ACN
  • apply for a new ABN.

Goods and Services Tax (GST) (Required for most businesses)

GST is compulsory if:

  • your business has a GST turnover of $75,000 or more
  • your non-profit organisation has a turnover of $150,000 per year or more
  • you provide taxi travel for passengers in exchange for a fare as part of your business, regardless of your GST turnover. This rule applies to both taxi owner drivers and people who just rent a taxi
  • you’re an overseas business importing services, digital products or goods worth less than
  • A$1000 to Australian consumers and make over A$75,000. You can find more about tax on retail sales of goods and services into Australia on the ATO website.

Once you’re registered for GST, any invoices you send to customers will need to include a GST component. Visit our Invoicing and collecting payments page for more information on invoicing, including tips for dealing with unpaid invoices.

Pay as you go (PAYG) withholding (Required)

You must register for PAYG withholding if you need to withhold an amount from a payment for tax purposes.

Withholding an amount from a payment is required if you make payments to employees, directors or businesses that don’t quote their ABN to you. In each case, you must register for PAYG before you can withhold that amount.

Payroll Tax (Required in certain circumstances)

Payroll Tax is collected by each state and territory government on the wages paid by employers each month. You must register for Payroll Tax in each state or territory that your staff are location in if your monthly Australia-wide wage bill is above the thresholds set by that state or territory government.

For example, in financial year 2013-14, QLD and NSW have a 31-day threshold of $91 666 and $63 699 respectively. If you employ staff in QLD and NSW and your total Australia-wide wage bill for those 31 days is $95 000, you will need to register for Payroll Tax in both states. If your bill is $75 000, you would only need to register in NSW.

If your total Australian wage bill is under the maximum threshold for your state or territory, you’re not liable to pay.

Find out the monthly threshold by visiting the Revenue Office website in your state or territory.

Fringe Benefits Tax (FBT) (Required in certain circumstances)

Providing perks, or fringe benefits, to your employees can attract FBT.

This might include providing:

  • A company car
  • Discount or free car parking
  • Low interest loans
  • Christmas parties
  • Payment of private expenses as part of a salary package.

You should register for FBT as soon as you decide to start providing fringe benefits to your employees.

9.5 Motor Vehicle Expenses

Business related vehicle expenses can be a significant tax deduction. If this expense is claimed, accurate record-keeping is a must.

There are 4 main methods of recording mileage:

  • Logbook method
  • Cents per kilometre method
  • 12% of original value method
  • One-third of actual expenses method

It is recommended that the above is discussed with your accountant/tax adviser at an early stage to ensure compliance with the rules and the selection of the best method depending on the Franchise partner’s circumstances.

9.6 Accounting Procedures

All accounts must be kept up to date. No ‘cash jobs’ may be taken, and any cash payments received must be banked within 2 business days and a Music Lessons Academy receipt issued.

We require franchise partners to use QuickBooks as their accounting software.

9.7 Payment Terms

Student invoices are sent on a monthly basis for the upcoming month’s lessons. Payment is due within 14 days. 

If requested, students can pay on a fortnightly or weekly basis. The due date for each of these invoices is 7 days.

Students will be credited for cancellations made with 24 hours’ notice of the scheduled lesson.

If the cancellation was made within 24 hours of the scheduled lesson, the lesson will still be charged.

9.8 Receiving Payments

Music Lessons Academy accepts the following forms of payments.

  • EFTPOS (via Stripe)
  • Credit Card (via Stipe)
  • Direct deposit via bank transfer
  • Paypal
  • Crypto currency