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Business News

  • Written by Tess Sanders Lazarus


Coco Hou, tax specialist and accountant, has shared her advice for people who are starting up their own businesses, setting up side gigs, or moving into consultancy work. The start of the new financial year is always a busy time for people starting up their own businesses.

 

“The number one element of starting your own business is understanding what kind of business you want to start. This may seem simple, but there are big differences between sole traders, partnerships, companies and trusts,” says Coco Hou.

 

Sole traders lodge a single tax return for their income, as there is no separate business tax return. Sole traders pay taxes at the same tax rates as individuals, and there is a tax-free threshold.

 

Companies are taxed as a separate entity, and as a director you must file both a company tax return and an individual tax return. There is no tax-free threshold for companies.

 

While the right structure for your business will depend on your income and the benefits and deductions you can claim, the overhead and ongoing costs of sole trading are lower than that of companies, as sole trading is a simpler structure.

 

Partnerships are for when a group of people run a business together, but not as a company. Each partner will file a personal income tax return.

 

Trusts involve holding property or assets for the benefits of others. Beneficiaries will pay income tax on income received from trusts throughout the year.

 

No structure is better or worse than any other, but it is worth carefully considering the overhead and ongoing costs of each structure, and weighing up the deductions and benefits of each structure.

 

“Remember, while it’s best to figure out which structure is best for you as you start out, you can change the form your business takes later on,” says Coco Hou.

 

Personal Service Income is another key factor in new businesses tax obligations.

 

Coco says, “If the majority of your business income is in the form of personal income, then it will be taxed as personal income, and tax benefits related to the specific structure of your business may be unimportant.”

 

Coco emphasises how important it is to be above the board with taxes.

 

“For a new business it is important to get things right from day one. If you’re functioning as a sole trader, you can claim business expenses as tax deductions. While this is a great benefit, make sure your documentation is entirely in order before you claim.

 

“You never know when you might be audited, and it can be a devastating blow to a small business to be fined or to incur interest because of an error in tax files. This is why I suggest to meet with a good accountant before you get started to ensure you are setting things up in the most suitable way possible.”

 

For novices to business, who are only just starting on their journey, my advice is to not only find a good accountant to help you set things up, but to continue working work them to check and assist along the way with taxes and expenses.

 

“That first overhead can seem a big and daunting, but it’s worth hiring an accountant to help out for at least the first few years,” says Coco Hou.

 

“Having that peace of mind, and the security of a professional accountant to ensure your taxes are correct and your finances are in order is priceless.”

 

Coco wishes the best of luck to all those starting new ventures in the new financial year.

 

“Starting on a new business venture is exciting and amazing, and to have a stress free, informed approach to taxes is the best thing for your new journey. It allows you to focus fully on realising your dream.”

 

Coco Hou, is the Managing Director of Platinum Professional Training. Platinum is one of Australia’s largest accounting training and internship providers with offices across all major Australian cities. Coco Hou is also a CPA qualified accountant and Managing Director of Platinum Accounting.

 

www.platinumaccg.com.au

www.cocohou.com.au

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