By: Max Newnham
When a business is started from scratch there are a number of steps that should be taken to ensure costs are not missed as a tax deduction. It is also important to decide what will be the best business structure to use to own the business.
In most cases, unless the business will expose the owner to a high risk of being sued if things go wrong, in the interest of keeping costs to a minimum it makes sense to start off operating as a sole trader or a partnership of individuals.
It is important from the start to keep your personal financial affairs separate from your business.”
Once the business has started to make significant income, and it makes sense to limit liability and have the owner or owners draw a salary from the business, the business can be transferred to a discretionary family trust or a company then.
Q. I want to start an electrical contracting business that begins trading on July 1, 2016 but am unsure on what to do and in what order. Do I open a business bank account and transfer $10,000 of my savings [into] it and then buy my logo, uniform, website etc? Even though these expenses are incurred prior to July 1, can they be claimed in next year’s financial year as start up costs? If I already registered an ABN do I have to get a new one if I want to register a business name? When do I open the bank account and do I buy a car now or after July?
A. You will not need to apply for a new ABN if you register a business name to operate under. You will however need to amend your details on the business register to show the business name that you will be using.
You should open your business bank account as soon as possible and transfer the $10,000 to fund the set up costs. It is important from the start to keep your personal financial affairs separate from your business. By paying for all of your business costs for this new account, and not from a personal bank account or an account that is a mixture of business and personal transactions, you will make it easier to keep a track of what your business is doing and also save on accounting costs.
All of the expenses for setting up your new business should be included in the relevant section of your 2016 income tax return. You will more than likely not pass the $20,000 turnover test to be able to reduce your salaries and wages income by the business loss made for the 2016 year. You will however be able to carry forward that loss to be used and offset against your income in the 2017 financial year.
When you should buy a car will depend on when you need a vehicle to operate your business. If you don’t need the car before July 1 don’t buy it now. If you buy a car that costs less than $20,000 you can claim a depreciation tax deduction for the full cost against your first year’s income.
Source: Sydney Morning Herald
