Is tax compliance as frightening for start-ups as some make out?
I’m weighing up whether to launch my own business next year but there seems to be a lot of coverage at the moment about the tax and red tape burden that Australian businesses face.
Is the tax regime, in reality, that onerous for new businesses? If so, how can I best cope with compliance?
Australia is a country with a strong social and welfare base. We have high levels of education, quality roads and infrastructure and our senior citizens are generally well looked after.
The taxes we pay help to contribute to uphold the diverse needs of the greater Australian community.
Australian businesses are key to an effective Australian tax system and contribute through a number of direct and indirect taxes. Business tax includes income tax, goods and services tax (GST), payroll tax (state government administered), fringe benefits tax (FBT) and capitals gains tax (CGT).
Further business compliance considerations include ASIC and Corporations Act requirements (specifically applicable to companies).
These include mandatory auditing requirements, directors’ duties and obligations and ASIC corporate registry obligations.
Organisations or groups first entering the Australian business market either as a branch or subsidiary of an established foreign parent need to further review international tax considerations such as transfer pricing.
For local start-ups the key considerations usually revolve around payroll and employment. A common issue for the local start-up scene is the contractor versus employee deliberation.
The employer’s obligation towards employees extends to paying superannuation, withholding the right amount of tax, organising workcover insurance, potentially paying payroll tax and complying with employee reporting.
Conversely, independent third party contractors do not attract the above employment related obligations.
The key issue for start-ups and their advisors is to carefully analyse the true nature of the relationship between the business and the contractor.
New business owners can largely avoid the labyrinth of compliance headaches by focusing on their business and partnering with an experienced tax accountant and bookkeeper (please see my earlier article).
Choosing the right tax accountant and bookkeeper is just as important as choosing the right accounting software package.
A suitable software package will streamline invoicing, purchases, GST, payroll and reporting.
If managed systematically, the compliance burden quickly becomes routine and methodical. Once you have compliance under control you can focus on what really gets your business heart racing.