Establishing a legal trading structure
We recommend a company as the best trading structure for tax minimisation purposes for a small business where less than 50% of the revenue is generated by the owner. Further we recommend trading via a company to best protect your personal assets from the risks of being in business. Southern Cross Accounting will attend to the establishment of the company and the cost is $1,320.00
TFN and ABN application
Your business will need to obtain a TFN in order to complete a yearly tax return and report its taxable income to the Australian Tax Office (ATO).
Your business will also need an ABN and to report on tax invoices when they sell products or services. The purpose of the ABN system is that if a business doesn’t have an ABN it must be operating outside the tax system (the cash economy). Further as a business owner you are now required to withhold 47% from the payment from a sale made to you by a business that doesn’t have an ABN.
Southern Cross Accounting Redlands will apply for the TFN and ABN as part of the company establishment.
GST and PAYG W registration
Your business must register for GST where it’s turnover exceeds $75,000. Being registered for GST requires your business to charge 10% your sales (with some exclusions) and to pay those amounts to the ATO on a business activity statement (BAS). Your business can claim credits for GST you’ve paid on outgoings where you were charged GST on the BAS.
GST obligations reported and paid on a BAS’s can be based on a cash or accrual (invoice) basis. New businesses generally report and pay BAS’s quarterly but can do so monthly.
You can take an income from your business in the form of dividends or wages. We strongly recommend you do so in the form of wages. If you take your income via wages your business will need to register for PAYG withholding. PAYG Withholding requires that you withhold some tax from your wages and report and pay those amounts on BAS’s.
BAS obligations (GST and PAYG W) can seem overwhelming but are easily addressed as you’ll see below.
Once the company and trust are established you come to our office and sign the relevant documents and leave with a company binder for your safe keeping.
Open a bank account
As soon as practical we recommend you take the company binder to your bank and open two business bank accounts. The first bank account will be your general transactional account and you should have a debit card attached to this bank account. The second bank account will be your BAS account used to save the net GST you’ve collected and the PAYG Withholding you’ve withheld from your wages. We highly recommend these obligations are saved for weekly and can show you how using the software detailed below.
Subscribe to Xero
Once you’ve got your bank account details and debit card details contact Josie at Jim’s Bookkeeping and she’ll subscribe you to Xero, an online accounting software, to help you maintain your accounting obligations. Jim’s Bookkeeping will start a bank feed whereby transactions that run through the business bank account are directly imported into Xero. Jim’s Bookkeeping will set an up a standardised chart of account used to account for the income and expenses of your business.
Invoicing and bills
Jim’s Bookkeeping will establish your invoicing template so you can start raising invoices immediately.
Your business will receive tax invoices (bills and receipts) which you can choose to meet electronically or with a paper-based approach. A paper-based approach involves putting all the tax invoices you receive in a folder generally on a monthly or quarterly basis often separated by alphabetically. This method can be tedious and time-consuming especially with tax invoices that are handed to you in person (e.g. fuel receipts).
A Xero subscription comes with a free version of Hubdocs which allows you to save the tax invoices directly in the software by either forwarding tax invoices received by email or by scanning and then emailing bills handed or using the Hubdocs app on your smart phone. Josie at Jim’s Bookkeeping will walk you through the process.
Bookkeeping in Xero
You can choose to look after your business’s bookkeeping obligations or engage Josie Jim’s Bookkeeping to undertake it for you (Josie has fixed packages to tailored to you needs). If you choose to do your own bookkeeping, we strongly recommend you undertake some preliminary bookkeeping training from Josie at Jim’s Bookkeeping.
The payroll feature in Xero calculates the withholding (the PAYG W system) on the remuneration for you so there isn’t a tax shortfall at the end of the year or need to set aside estimated of tax obligation in separate personal bank accounts. Further this option creates a superannuation obligation on the remuneration that otherwise would not be saved for your retirement. Josie can help set you up on Xero’s payroll features and help you process your payroll.
Single Touch Payroll (STP)
The payment of wages to anyone is required to be reported to the ATO on each payroll cycle via the single payroll touch system. After initially registering with the ATO this obligation is met through the features in Xero’s payroll module.
BAS’s are remitted quarterly with a September, December, March and June reporting cycle to reported 28 days after the end of the quarter. It’s a business’s first large tax reporting obligation where the net GST collected and PAYG Withholding on wages are reported and paid to the ATO. Whether you’ve been undertaking the bookkeeping yourself or engaged Jim’s Bookkeeping we recommend Josie prepare your BAS’s to ensure accuracy and that you meet you reporting deadlines. Further if you’ve been following our advice on saving for the BAS obligations in the second business bank account the funds will already be there to make payment. The BAS obligation often create cash flow issues business owners as they’ve not put aside the funds to meet the obligation and find the large reduction in the business bank account an emotional rollercoaster ride (especially when there’s insufficient funds to comfortably meet it).
Employers are required to remit superannuation with same quarterly cycles above and again often creates cash flow angst for business owners that have not separately saved for it. We recommend paying super in the same cycle as the payroll cycle to eliminate the large quarterly cash outlay and risk of late payment of superannuation (and the resulting superannuation guarantee charge). Failure to pay on time creates a further reporting obligation and the resulting payment is non-deductible. Another option is to open a third bank account to save in accordance with the business’s payroll cycle so the funds are already saved for when the due date arrives.
Superannuation payment obligations are reported to the ATO via the Superstream system. Xero has a highly automated function whereby with a few clicks and entering a code a business can have the superannuation obligation automatically deducted from the business bank account. Josie can help set up Xero’s superannuation feature and walk you through the steps for payment.
Superannuation is an expense that is only deductible when paid so if the business is to obtain a deduction for the June quarter it needs to pay the superannuation before 30 June (often a week before)
It’s a good idea to see us ahead of tax time to address ways your business can legitimately minimise its tax liabilities and also start saving towards after all tax planning measures have been addressed
Businesses operating through trusts are required to lodge a yearly tax return with a 30 June reporting cycle. The due date for lodgement as you’re with a tax agent extends to 15 May the following year.
Annual return time
Two months before the one-year anniversary of the creation of the company the Australian Securities and Investment Commission (ASIC) will issue an invoice for circa $280 for having a company. Further small companies must maintain a registered office open from 10am to 3pm on business days and we often act in that role given it’s hard for small business to meet this obligation for which we charge $220 annual as well as maintaining the company binder (electronically) and meeting your other annual return obligations (ensuring the all company details are correct and a solvency declaration is prepared.
Other obligations and information
The above is not a complete guide to all your legal obligations but more an introduction to the more immediate ones. For more information on other compliance obligations please contact us with your specific questions
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