Australia is regarded as one of the best places to start a new business venture. You will be delighted to know that starting a business in Australia requires minimum formalities. The Australian Government has ensured that most businesses function here smoothly and business activities are seldom disrupted due to unnecessary laws and regulations.
Therefore, it comes as no surprise to know that World Bank has ranked Australia in the seventh position under the category ” Starting a business”. The ease of starting a business in Australia is extremely high as it is primarily an open market and has minimum restrictions on the import of goods and services.
Now, you are aware that Australia is the best place when it comes to new business ventures. It is, therefore, important to have the right idea for a new business venture. To market the idea successfully, the following five business aspects need to be followed before starting a business in Australia.
It is quite nerve-racking starting a business in Australia from scratch but it can prove to be quite an adventure, provided you have the right marketing strategy to conduct business in Australia.
The foremost thing to remember before starting a business in Australia is that you must register your company. You might be a sole trader looking to start a business in Australia or a foreign company starting a business in Australia, registration of the company is an absolute must before doing business in Australia.
5 Important Aspects About Starting a Business in Australia
1. Business Structure to be Decided Before Starting a Business in Australia
A crucial business decision that needs to be taken before starting a business in Australia is to decide on the business structure. The choice of the business structure depends on the size of the business and the type of business activities.
A business structure can be changed with the advancement of the business or as and when there is a growth and change in circumstances of the company.
A business structure is important to determine the tax payments, personal liability, protection of assets, business owner’s responsibilities, and the cost required for the paperwork. You can choose from various types of business structures such as Sole trader, Partnership Firm, Company, or Trust.
A Sole Trader
A sole trader can be termed as a simple form of the business structure because it is much easy and is far less expensive than any other type of business structure. A sole trader is responsible legally for every aspect of the business.
From the decisions ranging from starting a business and handling the day-to-day operations of the business, it will be the responsibility of the sole trader to make the right decisions at all times.
The key advantage of a sole trader is that the setting up and operating aspects are much simpler than the rest of the business structures. There is complete control of activities in the business with very few business decisions to be made.
If there are any losses incurred in the business, then it can be offset against other income subject to income tax rules. An Individual File Number(TFN) is allowed to file tax returns. No requirement to pay payroll tax, superannuation, or workers’ compensation insurance as a sole trader is the employee of the business.
In case there are any changes in the business structures, then it will be an easy task to consolidate the business and start with the new company.
Disadvantages include unlimited liability which means personal assets are at risk if the business hits a rough patch. Tax planning will be hit quite badly as business profits cannot be split with family members and the sole traders will be liable to pay tax on the entire income generated from the business.
A Partnership Firm
A partnership firm will involve more than two people getting together to form a company to promote a business for profit. Partnership firms in Western Australia are governed by the Partnership Act of 1895.
Most small business owners enter into general partnerships. Here, the partners will be responsible and will partake in the daily management of the business.
Advantages of a Partnership firm include the fact that it is easy to set up with minimum reporting requirements. Most management decisions and control are shared with other partners.
Subject to certain criteria, a business’s tax losses can be offset against the partner’s income. Dissolution of the partnership will be relatively easy.
Since partners are not regarded as employees, no need for payment of superannuation and worker’s compensation insurance. The business structure will be easily funded by banks as there will be more than one person’s income or assets.
Key disadvantages would be the fact that since a partnership firm is not regarded as a separate legal entity, partners will not be liable for the debts. So no protection of assets in a partnership form of business structure.
Others would be disputes relating to profit sharing, administrative control, and business direction. During the dissolution process, a change of ownership would be an uphill task as a new partnership has to be formed.
A company can be termed a separate legal entity. It is allowed to sue and can be sued too. The company can incur debts, the personal liability of the shareholders can be limited and they are not responsible for the debts.
As a complex business structure, a company will need to incur a high cost for setting up the business. A company can be formed as a private entity or a public one. At least one director who is responsible for managing the activities of the business is needed to register as a public limited company.
A company needs to be registered under the Corporations Act 2001 and with the Australian Securities and Investment Commission.
Advantages of a Company are that shareholders have limited liability and this type of business is understood and accepted structure of a business. A company would be able to raise sufficient capital for the business plan and can carry forward losses if any to offset future profits.
The process of the sale of a company is significantly simple and ownership can be transferred with minimum legal obligations. Shareholders would receive dividends from profits from the company. The profits can also be reinvested back into the company.
High cost in setting up a company and high maintenance would be the main disadvantage of a company. Apart from the fact that the directors of the company do not have complete control, it has many complex reporting requirements.
Profits can be distributed to shareholders as dividends, but sadly losses are not allowed to be distributed in any way.
A business structure that allows a trustee to undertake the business on behalf of the members of the trust is termed a trust. As a non-separate legal entity, trust is either an individual or a company.
A trustee has a legal binding towards the debts incurred by the trust and is allowed to use the assets to mitigate them. The trustee will have to pay any shortfall arising due to non-payment of debts incurred.
There are two types of trust that can be set up through the trust deed. They are Discretionary Trust and the Unit Trust.
The main difference between the types of trust would be with specific reference to the distribution of trust. In a discretionary trust, the trustee can decide on the beneficiary during the distribution of funds
In a unit trust, however, the distribution is done based on the number of units held by each trustee as the interest in the trust is divided into units.
The main advantage of running a trust is that there is a reduced liability for a corporate trustee, every asset will be protected and there is a level of flexibility in the distribution of assets and income.
Disadvantages include increased expenditure required to set and extremely complex for administration. A trust cannot be easy to dissolve or make any changes, especially if children are involved. All profits that are reinvested into the business would attract penalty tax rates. Lastly, a trust can distribute profits alone and not its losses.
A business name will help you give the right start to your business. This will help customers emotionally connect with the company’s brand image.
All companies need to have business names except if you are a sole trader. Then there is no necessity for the name of the business.
Before you select the business name, ensure the availability of the name that is to be registered. If a company is registered under an existing name, then there would be a violation of existing trademarks.
A business in Australia needs to have a registered office address. The address should be the prime location of the place of business.
The address will be used by ASIC to send all manner of business and official communications. It will be the primary place of business and at no cost should only be PO Box. Small businesses such as Sole traditional owners need not have a business address.
2. Business Registration
To set up your own business in Australia, it is important to register for the Australian Business Number (ABN) and goods and services tax. A business needs to register for one to three years only. After which, it has to be renewed for registration again.
Business registration can be done online, through phone, or via a registered government agent
Register your Business with ASIC
After you develop a business plan, the next step is to register your business with ASIC through the Australian Government’s Business Registration Service. It is either done through the online portal or through a private service provider.
After the processing of the application, you will receive an ACN from the ASIC. An ACN is used to apply for an ABN (Australian Business Number)
ABN will be needed for the registration of your company and for the issuance of the certificate of registration.
Before starting a business in Australia, all foreign companies must register with ASIC as a registered foreign company. The foreign company must have a local agent to transact any business on behalf of your company here in the country.
Application of ABN (Australian Business Number)
All businesses need to have an ABN to conduct any type of business in Australia. Australian Business Number or the ABN is an 11 digit number that is specific and unique to your business.
ABN is important for tax, invoicing, claiming of goods and services tax credits, and also getting your company registered under an Australian.au domain name.
ABN is given to non-resident Australians too. There is very little documentation to become an Australian Citizen. As a non-resident, you need to have the Tax File number or the proof of identity and the current business statement in Australia.
Application of TFN (Tax File Number)
In order to file your business tax return, you need to have a Tax File Number (TFN). A separate TFN is not required to operate as a Sole Trader. TFN is applied while applying for ABN for most businesses.
Register Domain Name of your Business
Once the name of your company has been registered, then you can start the process of registration of the domain name. In order to get a .com.au domain for your business name, you necessarily need to get ACN.
Opening a Bank Account
One of the important tools in operating a new company is to open an account with the local bank. If your company does not have business premises in the country, then one must visit the bank to complete KYC (Identification Verification) requirements. Service Providers like ABN Australia can help with account opening procedures too.
3. Tax Implications to Know Before Starting a Business in Australia
It is imperative to understand the tax implications so that you are taxed correctly and to avoid all manner of penalties. The following are the general overview of tax implications with reference to record-keeping, tax registrations, and payment options that need to be kept in mind while doing business in Australia.
The Australian Taxation Office is responsible for the administration and collection of taxes in Australia. Some of the important Taxes that generally needs to be remitted for a business are:
(a) Company Tax
A company tax is to be paid by all Australian Companies. The Tax rate is set by the Australian Government and it applies to all resident and non-resident companies.
(b) Capital Gains Tax
Capital Gains Tax is a part of Income Tax. It applies to all capital gains made through the disposal of assets. All businesses are required to keep a separate record of assets acquired to be taxed under CGT. Some small businesses may receive concessions under certain circumstances.
(c) Goods and Services Tax
A national broad-based consumption tax that is levied on most goods and services either sold or consumed in the country is termed as Goods and Services Tax(GST). Payment of GST can be done after the company registers with the Australian Tax Office.
Those businesses that pay for business supplies along with GST can claim an input tax credit. GST concessions are given to certain companies in Australia.
(d) Payroll Tax
The tax paid on the number of salaries paid to your employees is called Payroll Tax. It is taxed on the total wages paid each month. It is paid when Australian wages exceed the exemption category as per the state and territory laws.
(e) Other Business Taxes
All other government taxes such as state and territory taxes of the Australian Government relevant to business activities will come under this division of Tax. Land Tax and Fringe Benefits Tax are some of the items included.
4. Business Insurance
All types of insurance in Australia are subject to the laws of the land. The various types of business insurance are:
- Public Liability Insurance – This insurance covers the business’s liabilities incurred by the third party for personal injury and property damage.
- Workers Compensation Insurance – A compulsory insurance that needs to be taken for every employee.
- Professional Indemnity Insurance – An insurance taken for the protection of the business against any civil liability claims that may arise due to damages or losses through professional services rendered.
5. Licensing And Permits Needed Before Starting a Business in Australia
Licenses and Permits are needed for businesses in Australia. All regulatory requirements and safety requirements are specific to business activity. This is an important part of your business checklist as it will help you get the necessary approval for any type of business activity.
It helps to protect the business and your employees’ interests. All licensing and permits are subject to the local state laws and are specific to each industry.
Why do Business in Australia?
Australia is the sixth-largest country in the world and with its diversified population, the economy is at its very peak. The country is known for its beautiful beaches, spacious open areas, and a high standard of living.
Many do consider relocating to this prosperous country as starting a business in Australia would offer them a host of advantages. Apart from the favourable conditions of starting a business in Australia, it should be noted that Australia has a high spending and affluent market for businesses to operate successfully.
Since 1990, Australia has grown at 3.3% per annum and the inflation rate has been considerably low at 2.5%. Therefore it is an economically stable market.
Besides starting a business in Australia, other advantages would be a larger target audience with an ability to spend and a highly qualified workforce. So the reasons are plenty and Australia is a wonderful place to live, grow and flourish immensely in all matters of business.