Marc Peskett: Top Tax Tips for Start-up Businesses

Getting into good year-round tax habits

By Marc Peskett
Thursday, 19 May 2011

Marc PeskettWith many businesses’ attention starting to turn to the end of the financial year on June 30, entrepreneurs will invariably focus on all matters financial, particularly how they handle their tax situation.


However, tax shouldn’t be a once-a-year issue. Start-ups need to get into good, consistent tax habits from day one, or risk restricting growth.


Starting up a business involves navigating through many issues and making decisions, designed to get the business at its best starting point to springboard into a successful first few years.


With limited cash, the focus of start-ups should be on minimising costs and pursuing the important priorities.


As tax can be a significant cost and drain on cashflow, it’s important that you know your tax obligations and factor these into your planning and decision-making at the outset.


With this in mind, here are my top six tax tips for start-ups:


1. Don’t let tax solely drive decision-making

While most business owners want to save as many tax dollars as possible, it’s important that major financial decisions are made in support of the strategy and business plan first and foremost.


Balancing the tax management approach against the commercial needs of the business should be a secondary consideration. Don’t spend $1 just to save 30c in tax.


A number of tax initiatives have been implemented for small businesses in the last few years, with the recent budget announcement of a $5,000 write-off for cars being one example of this.


These opportunities make it tempting for investment dollars to be directed where costs may be recouped via deductions or write-offs. When considering business investments, ask yourself a couple of key questions that will help assess whether it’s a good investment:


  • What areas of the business are the priorities for investment and growth?
  • How will this investment help generate leads or new potential clients?
  • How will it drive greater efficiency?
  • What other substantial benefit or return will it bring to the business?


2. Choose the right structure for your business

There are many considerations when choosing the right structure, including the commercial needs of the business, complexity of operating under the structure, costs of meeting the administration and reporting requirements, asset protection provided and the tax implications.


You need to have a clear sense of how the business will operate and then obtain some advice from your accountant about:


  • How you will be taxed under the structure during the life of the business, as the business earns income and then pays or distributes it to directors or beneficiaries?
  • How you can use the structure or a group of structures to meet your personal wealth needs and optimise your personal tax position?
  • How will you be taxed when you come to sell the business? If you don’t have the right structure you could find yourself paying a lot more in tax than you need to.


3. Take advantage of concessions and incentives

There are several tax concessions available to small businesses, including the R&D Tax Concession, Small Business Entity Regime and Small Business Capital Gains Tax Concession.


Each provide cash back to the business when it undertakes specific activities or at a certain milestone in the life of the business, such as at sale.


Be aware of the concessions and incentives available to you and put steps in place to access them. They can provide the benefit of an additional injection of cash or help prevent cash leakage.

4. Know your reporting obligations

The reporting obligations for SMEs vary depending on your activities and the structure you operate under.  While the Government has started to implement some initiatives designed to streamline and standardise business reporting, the onus is still very much on businesses being aware of and working to meet their compliance obligations.


Knowing them at the outset enables you to build the reporting requirements into your systems, so that it’s quicker and easier to extract and deliver accurate information required to meet statutory deadlines.


Some reporting requirements are given greater weight and enforcement. Your accountant will be able to provide more comprehensive advice on when and how you need to meet your obligations.


5. Factor tax and other payments into cashflow budgets

Just as it’s important to meet your reporting obligations, you also need to meet you tax payment obligations when they are due.


There are also a range of taxes and payments you may be liable for as a result of being an employer. The best way to ensure you do meet all these payments is to know when they are due and build them into your budgets.


Cash-strapped businesses will find it difficult to borrow or obtain external sources of cash to help meet these obligations.


The other tempting option is to delay remitting taxes as a means to managing cashflow, however the penalties to directors for doing so are several and can be severe. 

Planning to have the cash available when you need it is a less stressful approach.


6. Understand your tax returns

The buck stops with you. Ultimate responsibility for making tax payments, meeting reporting obligations and providing accurate information lies with the individual signing the annual return or in the case of a business operating under a company, all of the directors of the business.


Some of the penalties have already been outlined above, making it important that you understand the financial accounts and returns submitted by and for your business.


Starting up a business is a taxing experience, but with some comprehensive advice and a solid understanding at the outset, it shouldn’t be more draining on your cash than it need be.


For a more comprehensive discussion about tax issues that every start-up should understand, click here to register to attend Marc’s free StartupSmart-hosted webinar ‘10 Tax Commandments for Start-Ups’ being held tomorrow, Friday, May 20, at 12.30pm.


Marc Peskett is a partner of MPR Group a Melbourne based firm that provides tax, as well as business advisory and planning services, outsourced accounting, grants support and financial services to fast growing small to medium enterprises.  You can follow Marc on Twitter @mpeskett


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